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Author: 


Emerich,  Frank 


I     IllOa 


plus 


JJ 


Place: 


Chicago 


Date: 


[1923?] 


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Enorich,  Prank 

"Pittsburgh  plus".  The  interest  of  the  nation  inl 
the  now  fanoxis  controversy  over  steel  price  basing 
the  charges  broufiht  against  the  practice  and  the 
defense  aado  for  it»  by  Frank  Eaerich.  Chicago, 
Western  association  of  rolled  steel  oonsuners, 
[1923?] 

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"Pittsburgh  Plus 


A    Comprehensive    and    Concise    Treatise 
Upon  This  Notable  Steel-Pricing  Con- 
troversy,    the     Most     Important 
Industrial     Dispute    ol    the 
Day,  Presenting  Fully  the 
Claims  and  Arguments 
of  Both  Sides 


1 1 


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SCHOoY^orl-rnKSS 


By 
FRANK  EMERICH 


•40 


The  Associated  States  Opposing  Pittsburgh  Plus 

1305  City  Hall  Square  Building 

139  North  Clark  Street 

Chicago 


1 


■SHHaanB 


Second  Revised  Edition 


ksstttvAeh  «tate»  ©pposfng  ^tttal 

(THIRTY-IWO    STATES) 
I30»  CITY   HALL  SQUARE  BUILDlNa 

CHICAGO 

(Kftcecs  anil  Ittectacs 

BXECUTlVi:  COMMITTKK 

Hon.  B.   F.   Bakei,  Chairman 
Hon.  Herman  L..  Ekemn.  Secretary 
-  Hon.  Ben  }.  Gibson 
Hon.  Clifford  L.   Hilton 
Hon.  Robert  Scholrs 


Preface 


W.  E.  McCoLLOM,  Asst.  Secretary 

STATE  COMMI8HION8 

ILLINOIS 

Hon.  B.   F.    Baker,    Kewancc,   Chairman 

Sen.  Jno.  T.  Denvir,  Chicago,  Vice-Chtn. 

Hon.  Robert  Sc holes.  Peoria.  Secy. 

Sen.  Randolph  Boyd,  Galva 

Hon.  J.  E.  McMackin,  Salem 

Hon.  Burton   F.  Peek,  Moliiic 

Hon.  S.   H.   Thompson.   Quincy 
IOWA 

Gov.  N.   E.   Kendall 

Atty.  Gen.  Bkn  J.  Gibson 

MINNESOTA 

Gov.  J.  a.  O.  Preub 

Atty.  Gen.  Clifford   I-..    Hilton 

WISCONSIN 
Gov.  J.  J.  Blainn 
Atty.  Gen.   Herman   L.   Kkkrn 

0IRECTOKH-AT  I.AIUaJ       (ADVISORY) 


i 


ALABAMA  _    _ 

Atty.  Gen.  Harwell  G.  Davis 

ARIZONA 
Atty.  Gen.  John  W.  Murpiiv 

COLORADO 

Gov.  William  E.  Sweet 

DELAWARE 

Gov.  William  D.  Denney 
Atty.  Gen. 

Sylvester  D.  Townsknd,  Jr. 

FLORIDA 

Gov.  Cary  A.  Hardee 
Atty.  Gen.  Rivers  Buford 

GEORGIA 
Gov.  Clifford  Walker 
Atty.  Gen.  Geo.  M.  Napier 

IDAHO 

Atty.  Gin.  A.  H.  Conner 

INDIANA 

Gov.  W.  T.  McCray 
Atty.   Gen.  U.  S.  Lesh 

KANSAS 

Gov.  Jonathan  M.  Davis 
Atty.  Gen.  C.  B.  Griffith 

KENTUCKY 

Gov.  Edwin  F.  Morrow 

Atty.  Gkn.  Thomas  B.  McGrkgor 

LOUISIANA 

Gov.  John  M.  Parker 
Atty.  Gen.  A.  V.  Coco 

MAINE 

Gov.  Percival  p.  Baxter 

IIASSACHUSETTS 
Gov.  Channing  H.  Cox 

MICHIGAN 

Gov.  Alex  J.  Groesbeck 

Atty.  Gen.  Andrew  B.  Dougherty 


MISSISSIPPI 

Gov.  Lkk  M.  Uu sskll 

MISSOURI 

Gov.  A.  M.  Hyde 

Atty.  Gen.  Jesse  W.  Barrett 

MONTANA 

Gov.  Joseph  M.  Dixon 

Atty.  Gen.  Wellington  D.  Rankin 

NEBRASKA 

Atty.  Gen.  O.  S.  Spillmav 

NEVADA 

Gov.    J.    G.    SCRUGHAM 

Atty.  Gen.  M.   A.  Diskin 

NEW  MEXICO 

Hon.  Jose  A.  Baca,  Acting  Gov. 
Asst.  Atty.  Gen. 

John  W.  Armstrong 

NORTH  DAKOTA 
Gov.   R.  A.  Nestos 
Atty.  Gen.  George  F.  Shafer 

OKLAHOMA 

Atty.  Gen.  George  F.  Short 

OREGON 

Gov.   Walter  M.  Pierce 

RHODE  ISLAND 

Atty.  Gen.  IIkrbicrt  L.  CARPENTi?R 

SOUTH   CAROLINA 

Atty.  Gen.  Sam'l  M.  Wolfi 

SOUTH  DAKOTA 
Gov.  W.  H.  McMasteh 
Atty.  Gen.  Buell  F.  Jones 

UTAH 

Gov.  Charles  R.  Mabey 
Atty.  Gen.  Harvey  H.  Cluff 

WYOMING 

Gpv.  William  B.  Ross 


STEEL  is  king  in  industry  today.  It  is  the  hub  of  most 
industrial  effort,  for  this  is  **The  Steel  Age." 

The  following  treatise  explains  a  practice  in  the  steel 
trade  known  as  ''Pittsburgh  Plus,"  over  which  there  is  much 
controversy.  This  is,  it  is  believed,  the  first  attempt  to 
present  this  subject  in  all  its  most  important  details. 

So  much  interest  has  been  awakened  by  the  "Pittsburgh 
Plus"  controversy  recently,  that  it  is  thought  desirable  to 
make  a  presentation  of  this  character. 

So  that  the  treatise  may  be  thoroughly  understood,  certain 
information  regarding  the  production  of  steel  is  desirable. 

It  is  well  to  know  that  85  per  cent  of  all  steel  produced 
in  the  United  States  comes  from  mills  located  in  Pennsyl- 
vania, Ohio,  Indiana,  Illinois  and  New  York. 

To  indicate  how  the  capacity  of  the  leading  steel  produc- 
ing districts  is  distributed  over  the  country,  the  figures  for 
fourteen  leading  groups  are  given  herewith,  these  including 

80  per  cent  of  the  nation's  entire  ingot  production  capacity. 

Approximate  Annual  Ingot 
District  Capacity  Gross  Tons 

Pittsburgh,  Pa 10,000,000    ^ 

Chicago,  111 :  . .  8,750,000  ^ 

Youngstown,  Ohio 8,250,000   ^ 

Philadelphia,  Pa 4,500,000  . 

Cleveland,  Ohio   3,500,000  . 

Buffalo,  N.  Y 2,750,000 

Johnstown,  Pa 2,000,000  . 

Birmingham,  Ala. 1,500,000  ^ 

Baltimore,    Md 1,250,000  . 

Pueblo,  Colo 1,250,000  . 

Wheeling,  W.  Va 1,000,000  ^ 

Duluth,  Minn 500,000  . 

St.  Louis,  Mo 500,000  . 

Pacific  Coast 500,000  ^ 

It  is  also  desirable  that  the  outline  of  the  method  of  manu- 
facture of  the  leading  steel  products  be  understood.  The 
following  will  afford  a  sufficient  explanation. 

Ingot  steel,  from  w^hich  all  other  forms  of  steel  are  made 
or  "rolled,"  is  poured  from  the  furnace  into  removable 
receptacles,  or  molds,  known  as  flasks.  When  the  molten 
steel  takes  form  vvrithin  them,  these  flasks  are  removed  and 
the  steel  is  then  known  as  ingots. 

Ingots  are  re-rolled  by  elaborate  machinery  into  several 
semi-finished  forms  including  billets,  blooms,  slabs  and  sheet 
bars.  These  semi-finished  forms  are  again  re-rolled  into  finished 
forms  of  steel  including  structural  shapes,  I-beams,  channels, 
angles,  plates,  bars,  sheets,  rails  and  several  other  forms. 
Steel  pipe  is  rolled  from  a  semi-finished  form  known  as 
skelp.    Wire  is  drawn  from  a  semi-finished  form  known  as 

wire  rods. 

These  are  the  principal  merchant  rolled  steel  products, 
and  since  the  process  of  rolling  is  used  throughout  their 
production,  the  term  "rolled  steel"  is  applied  to  them. 

I- 


*Tittsburgh  Plus" 


THE  watchword  of  American  industry  today  is  economy 
and  efficiency  of  production  and  distribution.  The 
nation  has  an  outstanding  position  in  the  world,  due  to  the 
war,  but  for  this  to  be  maintained  it  must  utilize  every 
possible  factor  which  makes  for  efficiency  and  economy  in 
industry. 

The  world  abroad  is  chaotic,  but  this  chaos  must  end, 
sooner  or  later.  When  it  does,  America  will  face  the  keenest 
competition  it  has  ever  known  in  the  world's  niarkets,  and 
even  at  home,  for  Europe  will  be  eager  to  repair  the  havoc 
wrought  by  war  and  post-war  conditions. 

Self-complacency,  born  of  isolation  from  the  world's 
recent  turmoil,  will  then  no  longer  permit  any  practices 
which  do  not  strictly  comport  with  the  utmost  efficiency  in 
industry.  Even  today  it  is  apparent  that  this  country,  to 
maintain  its  present  position  and  insure  its  future,  must  put 
its  industrial  house  in  order  and  so  arrange  its  industries 
that  they  will  stand  the  test  of  the  severest  competition. 

We  are  now  a  creditor  nation,  where  formerly  we  were  a 
debtor  nation.  Debts  to  us  must  be  paid  largely  in  goods. 
That  is  conceded. 

We  must  seek  the  markets  of  the  world  for  our  surplus. 
That  also  is  conceded. 

Therefore,  it  is  essentiat  for  us  to  pay  the  closest  possible 
attention  to  every  factor  which  enters  into  productive  in- 
dustry; to  take  strict  account  of  our  present  industrial 
practices  to  see  if  they  are  the  best  adapted  to  present  and 
future  exigencies,  and  to  divest  ourselves  of  any  customs  or 
practices  which  hamper  or  threaten  to  hamper  our  industrial 
efficiency. 

While  leaders  of  industry  have  various  solvents  to  offer 
for  present  problems,  and  numerous  theories  as  to  our  most 
advisable  future  course,  th^y  are  all  agreed  upon  these 
fundamentals. 

The  Age  of  Steel 

Among  the  industries  in  which  this  nation  today  holds 
unquestioned  leadership  steel  is  one  of  the  foremost.  This 
period  of  our  history  could,  with  absolute  justification,  be 
termed  "The  Steel  Age,"  for  steel  plays  a  leading  part  in  the 
entire  industrial  scheme  of  the  world.  Therefore,  anything 
which  pertains  to  the  steel  industry  is  of  paramount  moment, 
and  any  practice  prevailing  in  that  industry  which  threatens 
to  impair  its  utmost  efficiency  is  not  only  of  grave  import  to 
the  Industry  itself  but  to  the  entire  nation. 

Five  years  ago  the  term  "Pittsburgh  Plus"  would  have 
fallen  with  a  strange  sound  upon  the  ears  of  anyone  not 
connected  with  the  steel  trade.  Today,  throughout  a  con- 
siderable section  of  the  country— and  in  ever-growing 
measure — this  term  has  become  quite  familiar. 


4 


That  is  because  a  vast  amount  of  public  sentiment  has 
been  awakened  regarding  "Pittsburgh  Plus,"  due  in  a  large 
degree  to  the  activities  of  many  organizations  which  are  up 
in  arms  against  it,  and  to  a  great  lawsuit  now  pending  before 
the  Federal  Trade  Commission,  having  for  its  purpose  the 
abolition  of  this  practice. 

"Pittsburgh  Plus"  is  that  practice  in  the  steel 
industry  by  which  all  rolled  steel  (except  rails) — 
regardless  of  where  made — is  sold  at  a  delivered 
price,  which  consists  of  the  mill  price  at  Pitts- 
burgh plus  the  amount  of  the  freight  from  Pitts- 
burgh to  destination. 

The  difference  between  the  amount  of  "freight"  included 
ih  the  selling  price  and  the  actual  freight  paid  to  the  rail- 
roads for  transporting  the  steel  is  the  "plus".  This  "plus" 
goes  into  the  pockets  of  the  steel  mills. 

As  an  illustration  of  the  working  of  "Pittsburgh  Plus," 
the  case  of  a  fabricator  or  manufacturer  of  rolled  steel  prod- 
ucts in  the  city  of  Chicago  may  be  taken.  If  such  a  manu- 
facturer or  fabricator  bought  a  carload  of  steel  at  South 
Chicago  or  at  Gary,  Indiana,  only  a  few  miles  distant,  and 
hauled  the  steel  away  in  his  own  trucks,  the  price  he  would 
pay  the  mill  under  "Pittsburgh  Plus"  would  include  $6.80 
per  ton  "freight  from  Pittsburgh,"  an  amount  equal  to 
approximately  14  per  cent  of  the  price  of  the  steel. 

At  Duluth,  Minnesota,  where  there  is  also  a  large  steel 
mill,  the  local  fabricator  would  pay  $12  per  ton  unearned  | 
freight  charge;  at  Pueblo,  Colo.,  $24  per  ton;  at  Cleveland,  I 
Ohio,  $4.30  per  ton;  at  Buffalo,  N.  Y.,  $5.30  per  ton;  at/ 
Johnstown,  Pa.,  $1.90  per  ton;  at  Sparrow's  Point,  Md., 
(Baltimore  district)  $6  per  ton;  at  Bethlehem,  Pa.,  (Phila- 
delphia district)  $5.40  per  ton;  at  Youngstown,  Ohio,  $1.90 
per  ton,  and  at  Wheeling,   W.  Va.,  $1.90  per  ton.     At 
Birmingham,  Ala.,  he  would  pay  $5  per  ton. 

No  Actual  Freight  Paid 

This  hypothetical  load  of  steel,  of  course,  was  never  hauled 
from  Pittsburgh  to  any  of  these  points  and  no  actual  freight 
charge,  therefore,  was  ever  incurred.  For  this  reason  the 
freight  charge  included  in  the  delivered  price  under  the 
"Pittsburgh  Plus"  system  has  often  been  referred  to  as 
"fictitious,"  "imaginary,"  "mythical,"  or  "phantom." 

"Pittsburgh  Plus"  is  defended  by  all  of  the  steel  mills. 
All  of  them  profit  by  it,  not  only  the  United  States  Steel 
Corporation,  but  all  of  the  so-called  independent  mills,  in- 
cluding the  Bethlehem  Steel  Company;  the  Youngstown 
Sheet  and  Tube  Company;  the  Jones  and  Laughlin  Steel 
Corporation;  the  Republic  Iron  and  Steel  Company;  the 
Inland  Steel  Company,  and  all  of  the  smaller  steel  producers. 

"Pittsburgh  Plus"  is  vigorously  assailed  by  numerous 
organizations  of  steel  fabricators  and  manufacturers  of  com- 
modities made  from  steel;  also  by  practically  all  farmers' 
organizations,  numerous  commercial  clubs,  thirty-two  sover- 
ign  states,  many  municipalities,  the  National  Association  of 
Purchasing  Agents  and  its  local  component  bodies,  and  by 
the  ultimate  consumer  who  eventually,  of  course,  pays  the 
**plus." 


I 


1 


I 


Claims  of  Both  Sides 

In  support  ot  "Pittsburgh  Plus"  the  steel  mills  advance  a 
number  of  arguments  representing  their  point  of  view,  all 
of  which  are  embraced  in  the  foUowiAg : 

1.  It  has  been  in  existence  practically  through- 
out the  life  of  the  steel  industry  in  America. 

2.  It  is  not  of  their  own  devising  but  results 
from  the  operation  of  an  economic  law— the  law 
of  supply  and  demand. 

3.  That  Pittsburgh  is  the  only  district  of  "sur- 
plus production,"  and  that  all  other  steel  centers, 
especially  the  Chicago  district,  are  often  unable  to 
supply  the  demands  made  upon  them. 

4.  That  because  of  the  working  of  this  eco- 
nomic law,  "Pittsburgh  Plus*'  automatically  dis- 
appears when  supply  exceeds  demand. 

5.  That  it  is  essential  to  the  stabilization  of 
the  steel  industry. 

6.  That  the  steel  industry  has  been  built  up 
under  and  because  of  it,  this  including  not  only  the 
steel  mill  interests,  but  the  interests  of  the  manu- 
facturers of  articles  made  from  steel. 

7.  That  without  the  added  profit  obtained 
through  the  "Pittsburgh  Plus"  practice,  high  cost 
mills  necessary  to  provide  sufiicient  steel  to  meet 
the  nation's  demand  in  "flush"  times,  would  be 
forced  out  of  business. 

8.  That  no  new  mills  would  be  built  in  the 
west  if  "Pittsburgh  Plus"  were  abolished. 

9.  That  the  only  result  of  the  abolition  of  this 
practice  would  be  the  impairment  of  existing  in-         ' 
vestments  in  and  about  Pittsburgh  and  the  enhance- 
ment of  investments  elsewhere. 

10.  That  the  abolition  of  "Pittsburgh  Plus" 
would  be  productive  of  no  general  benefit  to  in- 
dustry and  would  not  affect  the  country's  total 
production  of  steel. 

11.  That  objectors  seek  only  to  benefit  by 
obtaining  greater  profits  for  themselves  at  the 
expense  of  the  mills  and  that  these  profits  would 
not  be  shared  by  the  general  consuming  public. 

12.  That  because  of  its  long  existence  "Pitts- 
burgh Plus"  is  a  recognized  factor  in  the  steel  trade 
and  the  steel  industry  would  be  in  a  chaotic  con- 
dition if  it  were  abandoned. 

13.  That  the  Pittsburgh  market  and  "Pitts- 
burgh Plus"  exist  because  of  Pittsburgh's  ad- 
vantages as  a  point  of  production  and  distribution. 

14.  That  the   practice  does  not   discriminate        ; 
against  competitors  or  restrain  competition  and  is 
therefore  legal  and  unassailable. 

6  i 


$ 


Opposing  the  Practice 

Those  urging  the  abolition  of  "Pittsburgh  Plus"  ask  that 
rolled  steel  be  sold  f.o.b.  mill,  at  a  price  based  on  the  cost 
of  production,  plus  a  fair  margin  of  profit.  In  assailing  the 
"Pittsburgh  Plus"  practice  its  opponents  deny  entirely  the 
claims  of  the  mills  and  in  their  own  behalf  assert: 

<  That  "Pittsburgh  Plus"  is  not  the  result  of 
the  economic  law  of  supply  and  demand,  but  that 
it  is  arbitrary  and  man-made,  and  can  be  adjusted 
to  suit  the  convenience  of  the  mills. 

2.  That  it  exists  only  because  of  the  close  con- 
trol of  the  steel  industry. 

3.  That  it  was  not  general  practice  until  after 
the  United  States  Steel  Corporation  was  formed  in 
1901,  when  control  became  easier. 

4.  That  in  1908,  a  year  of  depression,  it  did 
not  disappear,  but  was  kept  in  force  by  agreement. 

5.  That  Pittsburgh  is  not  the  point  of  surplus 
production  on  all  forms  of  rolled  steel. 

6.  That  it  does  not  effect  real  stabilization  of 
the  steel  trade  in  times  of  business  depression, 
when  stabilization  is  needed. 

v^  That  its  only  "stabilizing"  effect  is  to 
"stabilize"  selling  prices  on  so  high  a  level  that 
mills  can  profitably  ship  into  the  normal  trade  terri- 
tory of  their  competitors. 

8.  That  it  is  merely  a  price-fixing  device. 

9.  That  in  the  case  of  pig  iron  and  rails  no 
such  device  exists  or  is  necessary,  and  therefore  it 
is  unnecessary  with  any  rolled  steel  products. 

dlO.  That  it  hinders  the  construction  of  new 
mills. 

11.  That  it  upbuilds  industry  in  and  about 
Pittsburgh,  merely  to  conserve  Pittsburgh  invest- 
ments to  the  detriment  of  the  rest  of  the  country. 

12.  That  because  of  it  the  rest  of  the  country 
is  made  artificially  and  uneconomically  tributary 
to  Pittsburgh. 

13.  That  it  centralizes  the  steel  industry  in  a 
place  not  best  fitted  economically  for  steel  produc- 
tion and  fabrication. 

14.  That  it  checks  the  diffusion  of  industry, 
and  is  therefore  harmful  to  the  nation's  industrial 
life. 

15.  That    it    prevents    many    localities    from 
utilizing  their  superior  natural  advantages  for  the 
economical  production,  fabrication  and  distribution     j 
of  rolled  steel. 

46.  That  it  prevents  free  competition,  both  in 
basic  steel  and  in  commodities  made  from  steel, 
and  is  therefore  unlawful  and  harmful. 

Y7.  That  it  injures  agriculture  by  causing  [ 
higher  prices  for  farm  implements  and  all  other  / 
rolled  steel  products  used  on  the  farm. 

18.  That  it  also  injures  the  farmer  by  restrict- 
ing industrial  development  nearby,  and  thus  pre- 

7 


£JL 


/ 


venting  him  from  enjoying  the  stabilizing  effect  of 
a  nearby  home  market  on  the  price  of  his  products. 

19.  That  this  practice,  carried  into  general 
efiEect  in  all  industry,  would  result  in  unwarranted 
raising  of  all  commodity  prices  and  would  tend  to 
bring  the  control  of  industry  generally  into  a  rela- 
tively few  hands. 

20.  That  it  tends  to  promote  inefficiency  be- 
cause of  removing  the  incentive  of  proper  com- 
petition. 

*21.     That  it  taxes  the  transportation  system  of 

the  country  by  promoting  "cross  hauling." 

v22.     That   it   entails   an   uneconomic   and   un- 

^       warranted  burden  of  from  $75,000,000  to  $100,- 

000,000    a    year    upon    the    general    consuming 

public. 

Origin  of  Practice 

The  mills  assert  that  "Pittsburgh  Plus"  grew  up  naturally, 
with  the  development  of  the  steel  trade,  and  was  always  a 

recognized  factor. 

This  is  denied.  It  is  asserted  that  several  other  price- 
fixing  devices  preceded  it ;  that  steel  was  first^  sold  f.o.b. 
mill;  that  this  was  succeeded  by  "zone  basing"  and  other 
price-fixing  schemes,  and  that  finally  "Pittsburgh  Plus"  was 

introduced.  ' 

Very  little  steel,  except  rails,  was  made  in  this  country 
priqr  to  1884.  With  the  use  of  steel  as  a  building  material, 
about  1884,  there  was  an  acute  demand  for  merchant  rolled 
steel  and  its  manufacture  grew  apace.  Conditions  in  the 
steel  trade  at  that  time  were  necessarily  unsettled.  The 
Carnegie  company,  of  Pittsburgh,  dominated  the  field  and 
early  in  the  history  of  the  trade  various  associations  were 
formed  which  parceled  out  the  business  and,  in  effect,  fixed 

the  prices. 

This  condition  obtained  for  several  ye^rs  and  was  followed 
by  an  era  of  pools,  associations,  "gentlemen's  agreements" 
"  md  other  price-fixing  devices. 

Within  the  period  from  1890  to  1900  the  various  manu- 
-icturers  of  rolled  steel — who  had  increased  considerably 
lin  number — agreed  upon  a  system  of  so-called  "zone  bases," 
by  which  the  country  was  divided  into  zones  and  uniform 
'prices  set  for  each  zone. 

A  Different  System 

This,  however,  was  not  "Pittsburgh  Plus"  as  it  exists 
today,  or  even  an  approximation  of  it.  This  is  shown  by  the 
testimony  of  Col.  Henry  P.  Bope,  former  sales  manager  of 
the  Carnegie  Steel  Company,  a  subsidiary  of  the  United 
States  Steel  Corporation,  given  in  the  pending  case,  as 
follows:  , 

Q.    Before  that  time  (1880)  what  was  the  practice? 
A.    The  practice  was  generally  to  quote  f .  a  b.  mills. 
Every  mill  was  a  law  unto  itself. 

Q.  And  the  difference  in  prices  between  the  mills,  did 
that  amount  to  the  freight  rate,  or  was  it  entirely  inde- 
pendent ? 

A.    Each  mill  made  whatever  price  seemed  necessary 

to  take  the  business. 


I 


Q.  W^as  that  price  dependent  upon  the  difference  in 
rates  from  Pittsburgh  at  that  time? 

A.  Not  always.  It  was  based  upon  market  conditions, 
upon  demand,  upon  the  location  of  the  building  where  this 
material  would  be  used,  and  various  other  elements  which 
entered  into  market  conditions. 

Q.  Was  the  freight  rate  to  Pittsburgh  the  guiding  basis, 
by  which  those  prices  were  made? 

A.  To  an  extent  only,  because  in  the  west  it  did  not 
make  any  difference  what  prices  were  made.  In  the  east 
it  did  make  a  little  difference,  although  freight  rates  were 
so  low  in  those  days  that  the  freight  differential  was  im- 
material. For  instance,  the  freight  rate  into  Chicago  in  r\ 
those  days  was  only  15  cents  per  hundredweight,  while  \J 
today  it  is  around  35  cents. 

Q.     Was  this  time  you  speak  of  in  1880  the  first  time,  at 
far  as  you  know,  that  the  Pittsburgh  basing  system  was 
established  ? 
I  A.     As  far  as  I  know,  the  first  time,  except  that  the  Pitts- 

burgh mills  always  quoted  the  Pittsburgh  price,  of  course. 

Q.  But  the^  other  mills  did  not  quote  Pittsburgh  basis 
prior  to  that  time? 

A.     No  sir. 

Zone  Bases  Used 

Following  this  first  "pooling  arrangement,"  according  to 
Col.  Bope's  testimony,  the  mills  decided  upon  a  "zone  base" 
for  fixing  prices.  This  also  was  partially,  but  not  entirely, 
based  upon  the  Pittsburgh  price,  as  is  shown  in  the  following 
excerpt  from  his  testimony: 

"After  a  time  they  decided  upon  a  zone  method  of  fixing  \ 
prices.  They  parceled  out  the  country,  taking  an  average  j 
freight  rate  and  using  Pittsburgh  as  a  basing  point,  they  I 
made  prices  to  cover  the  entire  country.  They  were  based  I 
in  such  a  way  that  all  the  mills  would  have  an  equality  of  \ 
competition." 

Col.  Bope  showed  specifically  that  while  Pittsburgh  was 
taken  as  a  point  of  computation  for  prices,  the  system  was 
not  "Pittsburgh  Plus,"  as  it  is  known  today.  His  testimony 
on  this  point  is  as  follows: 

"The  method  of  arriving  at  those  zone  prices,  after  the 
zones  had  been  established,  was  to  take  the  price  f.  o.  b. 
Pittsburgh,  and  make  an  average  price  based  upon  the 
average  rates  of  freight  into  those  zone  territories,  but  they 
were  not  exactly  the  freight  rates,  because  in  that  case 
anything  west  would  have  been  discriminating  against  the 
eastern  plants,  which  it  was  not  the  intention  of  doing.  It  was 
a  kind  of  brotherly  love  institution  in  those  early  days  and 
the  desire  was  to  have  everybody  get  his  fair  share  of  the 
business,  and  that  was  the  basis  upon  which  zone  prices 
were  established,  to  permit  every  mill  to  get  its  fair  share 
of  business  in  any  particular  zone  in  the  country." 

-Col.  Bope  then  showed  that  a  steel  bar  association  was 
formed  about  1897  for  the  purpose  of  fixing  prices.  This  he 
stated  to  have  been  something  in  the  nature  of  a  "gentle- 
men's agreement." 

The  System  Established 

With  the  coming  into  being  of  the  United  States  Steel 
Corporation  in  1901,  however,  all  this  was  changed  and  by 
1904  "Pittsburgh  Plus"  became  almost  a  hard  and  fast  rule 
in  the  trade  on  nearly  all  forms  of  rolled  steel.  In  1906, 
pools  and  agreements  were  declared  illegal,  and  then  the 
famous  "Gary  dinners"  were  given  monthly  by  Judge  E.  H. 

9 


Gary  in  New  York.  These  were  usually  attended  by  the 
heads  of  the  steel  industry-both  of  the  United  States  Steel 
Corporation's  subsidiaries  and  the  heads  of  independent  mills 
-and  they  also  had  a  definite  influence  in  fixing  prices,  as 
well  as  in  determining  other  problems  of  the  steel  trade. 
These  dinners  were  discontinued  shortly  before  the  famous 
^^dissolution  suit"  against  the  United  States  Steel  Corporation 
was  begun. 

The  opponents  of  "Pittsburgh  Plus"  contend  this  proves 
that  it  was  only  when  the  steel  industry  really  came  under 
close  control,  which  was  with  the  advent  of  the  United 
States  Steel  Corporation,  that  "Pittsburgh  Plus"  as  it  exists 
today,  was  made  possible.  They  assert  that  this  shows 
conclusively  it  is  not  an  economic  law  which  is  responsible 
for  the  practice,  but  that  it  is  a  man-made  law,  a  dictum 
from  those  in  control  of  the  industry,  and  that  therefore 
the  defense  of  economic  stress  is  utterly  untenable. 

Supply  and  Demand 

The  principal  reliance  of  the  mills  in  justification  and 
defense  of  the  "Pittsburgh  Plus"  practice  is  upon  the  theory 
that  it  is  the  result  of  a  natural  economic  law — the  law  of 
supply  and  demand. 

This  is  stated  in  so  many  words  by  Judge  E.  H.  Gary, 
chairman  of  the  board  of  directors  of  the  United  States  Steel 
Corporation,  in  his  testimony  before  the  Federal  Trade 
Commission,  in  which  he  said : 

**I  think  I  am  sufficiently  acquainted  with  the  history  of 
the  thing  to  know  that  this  Pittsburgh  basing  proposition 
is  not  the  result  of  any  combination,  or  any  illegality,  but 
grew   up   naturally;    has   been   maintained   naturally,    and 

yiias  largely  disappeared   naturally,  because  of  competition. 

iThis  law  of  supply  and  demand  has  brought  it  about." 

The  mills  contend  that  the  Pittsburgh  steel  district  is  the 
country's  surplus  producer  of  steel.  They  assert  that  it 
produces  far  in  excess  of  its  own  normal  requirements  and 
that  in  normal  times  other  steel  producing  districts  draw 
upon  it  to  supply  their  own  deficiency. 

Due  to  this,  say  the  mills,  steel  that  is  actually  bought  in 
Pittsburgh  because  of  insufficient  supply  elsewhere  must  be 
sold  at  the  Pittsburgh  mill  price  plus  the  actual  freight  tc 
destination.  Steel  produced  elsewhere  than  at  Pittsburgh,  the 
mills  say,  is  also  charged  this  freight,  to  "equalize"  the  charge 
made  on  purchases  at  Pittsburgh  by  those  compelled  to  buy 
there  because  of  shortage  in  their  own  districts.  That 
is,  the  mills  admit  that  the  unearned  freight  charge  is  made, 
but  they  claim  this  should  not  be  considered  in  the  light  of  a 
freight  charge  at  all  but  as  a  necessary  component  element 
of  the  price,  and  they  also  claim  they  are  therefore  entirely 
and  justly  entitled  to  this  additional  price  element. 

To  illustrate  this,  the  mills  assert  4hat  the  Chicago  dis- 
l  trict,  which  is  the  second  largest  steel  producing  district  in 
I  the  country,  in  normal  years  calls  upon  Pittsburgh  for  a 
I  considerable  portion  of  the  steel  that  it  requires.  Thus,  they 
Vsay,  if  Chicago  virere  a  basing  point,  the  early  purchasers  of 


^ 


steel  in  or  near  Chicago  would  buy  their  steel  at  one  pricc/j 
and,  after  the  Chicago  supply  was  exhausted,  the  later  pur-  I 
chasers  would  have  to  buy  in  Pittsburgh  and  pay  the  Pitts-  I 
burgh  mill  price  plus  the  actual  freight  from  Pittsburgh.  I 
Therefore,  the  mills  say,  they  sell  all  rolled  steel  "Pittsburgh  " 
Plus,"  so  as  not  to  discriminate  between  customers. 

This  "supply  and  demand"  theory  is  also  sometimes  re- 
ferred to  as  the  "surplus  production"  theory.  This  is  be- 
cause it  rests  upon  the  claim  that  Pittsburgh  is  the  point  of 
surplus  production.  The  mills  admit,  in  their  argument, 
that  when  any  other  considerable  producing  district  is  able 
fully  to  supply  its  own  needs,  then,  under  the  normal  opera- 
tion of  the  economic  law  they  invoke  to  justify  *Tittsburgh 
Plus,"  the  practice  should — and  they  claim,  does — 
disappear. 

Deny  Mills'  Theory 

The  opponents  of  "Pittsburgh  Plus"  deny  both  the  facts 
upon  which  the  steel  mills  base  their  theory  and  the 
tenability  of  the  theory  itself. 

They  deny  that  "Pittsburgh  Plus,"  as  applied  to  steel,  is 

the  working  of  a  natural  economic  law,  and   proceed  to 

show  that  it  is  merely  a  price-fixing  device,  devised  by  the 

mills  themselves  for  their  own  convenience  and  profit.     In 

support  of  this  they  cite  the  testimony  of  Col.  Bope,  in  the 

pending  case.     In   reply  to  a  question  as  to  whether  the 

Pittsburgh  basing  system  was  established  because  of  economic 

law.  Col.  Bope  stated: 

"You  always  have  to  have  some  basis  from  which  to  start 
to  build  up  a  proposition.  Here  was  a  tremendous  industry 
that  was  growing  by  leaps  and  bounds,  that  even  was  get- 
ting almost  out  of  the  control  of  the  men  who  were  con- 
nected with  it,  and  they  took  what  they  thought  to  be  the 
best  means  at  hand  in  order  to  stabilize  the  industry,  to 
get  the  best  results  from  it,  and  that,  to  my  mind,  is  about 
the  main  reason  why  Pittsburgh  was  chosen,  because  it  waa 
central,  because  it  had  been  the  steel  center  for  many  years, 
because  it  had  the  largest  mills,  dominating  the  general  in- 
dustry, and  it  seemed  to  be  a  very  natural  thing  to  do. 
Chicago  was  too  far  away,  and  it  was  not  the  steel  center 
in  those  days,  and  the  eastern  mills  were  so  scattered  that 
you  could  not  make  a  basing  point  at  Philadelphia,  or  Pas- 
saic, or  Trenton,  or  Paterson,  where  these  mills  were  located, 
so  Pittsburgh  was  the  logical  point  on  which  to  base  prices.*' 

A  Man-Made  Law 

In  reply  to  another  question  as  to  whether  the  law  of 

supply  and  demand  had  anything  to  do  with  the  Pittsburgh 

basing  system,  Col.  Bope  testified, 

"I  would  put  it  this  way:  The  law  of  supply  and  de- 
mand is  a  natural  law.  There  is  no  control  over  it  really 
by  any   man-made   proposition.      I  shauld   say   that  th© 

*Tittsburgh  Plus"  system  was  a  man-made  proposition, 

necessitated  by  chaotic  conditions  in  the  steel  market,  which 
seemed  to  render  it  the  only  available  means  of  stabilizing 
the  industry." 
The  opponents  of  "Pittsburgh  Plus"  insist  that  the  real 
reason  for  the  practice  is  found  in  the  fact  that  the  great 
steel  mills  of  the  country,  not  necessarily  by  concerted  agree- 
ment, substantially  act  in  concert  on  all  matters  affecting 
prices.     In  support  of  this  contention  they  instance  further 
testimony  by  Col.  Bope,  as  follows: 

11 


Q.  Now,  after  1%9,  coming  down  through  the  period  of 
1910,  1911,  1912,  1913  and  1914,  you  say  that  there  was  a 
substantia]  uniformity  of  prices  between  the  Carnegie  Com- 
pany and  all  its  competitors  with  mills  located  in  the  Pitts- 
burgh district  during  that  time,  for  instance. 

A.  Yes;  that  was  upon  certain  items.  There  was  a 
pretty  general  uniformity.  It  was  not  adhered  to  by  virtue 
of  any  agreement,  but  for  the  purpose  of  keeping  a  stabilized 
market.  Conditions  were  bad  during  some  of  those  years  - 
and  the  only  way  that  absolute  demoralization  was  pre- 
vented was  by  taking  that  stabilizing  of  prices  due  to  a 
precedent  (Pittsburgh  Plus)  which  had  worked  in  the  past 
and  was  used  at  that  time,  although  there  was  no  concert 
of  action. 

Otiicr  testimony  of  Col.  Bope  is  also  cited  as  showing  that 
"Pittsburgh  Plus"  is  a  man-made  rule,  rather  than  an 
economic  law. 

**The  mills  themselves  felt  that  the  proper  thing  to  do 
was  to  have  a  basing  point.  They  all  decided  on  this.  It 
was  an  established  thing  for  the  benefit  of  the  industry,  just 
as  almost  all  associations  of  one  kind  or  another,  in  any 
kind  of  business,  get  together  and  have  certain  legislation 
for  the  benefit  of  the  whole.  *****  But  now  there  are 
other  steel  centers,  which  perhaps  have  as  preponderating 
manufacture  as  Pittsburgh.  You  cannot  always  maintain 
a  state  of  affairs  and  have  it  exactly  the  same  as  it  was 
and  has  been  for  ten  or  fifteen  or  twenty  years,  because 


new  situations  arise." 

Determined  by  the  Mills 

And  to  show  further  that  "Pittsburgh  Plus"  owes  its 
existence  to  the  dictum  of  the  mills  rather  than  to  an 
economic  law,  the  following  testimony  of  Col.  Bope  is  cited : 

"My  recollection  is  that  it  (the  resumption  of  the  'Pitts- 
burgh Plus'  practice  after  a  brief  lapse)  was  done  for  two 
purposes:  First,  to  get  a  general  stabilization  of  the  whole 
steel  market,  and  second,  because  there  was  an  increment 
of  freight  there  which  could  be  obtained  that  was 
natural  and  part  of  the  profits.'' 


V 


The  Chicago  Situatian 


The  situation  at  several  other  points  of  steel  supply  is  also 
cited  by  the  opponents  of  "Pittsburgh  Plus"  to  show  that  the 
contention  of  the  mills  that  this  practice  rests  solely  upon  the 
law  of  supply  and  demand,  or  the  surplus  production  of  the 
Pittsburgh  steel  district,  is  fallacious. 

It  is  pointed  out  that  the  Chicago  steel  district — which 
roughly  embraces  the  city  of  Chicago  and  its  immediately 
adjacent  territory  in  northern  Illinois  and  northwestern 
Indiana — seldom  or  never,  in  normal  times,  produces  a 
quantity  of  steel  closely  approximating  the  rated  producing 
capacity  of  its  mills.  It  is  further  pointed  out  that  the  actual 
production  of  this  district  bears  an  almost  definite  and 
constant  ratio  to  the  country's  entire  production,  which  is 
worth  inquiring  into. 

In  spite  of  the  increase  in  capacity  in  the  Chicago  district, 
its  proportion  of  actual  production  to  the  actual  production 
of  the  country,  has  been,  over  a  term  of  years,  a  pretty 
constant  factor. 

This  would  seem  to  indicate  that  there  is  at  least  an 
implied  understanding  that  the  mills  in  the  Chicago  district 
shall  not  produce  beyond  a  certain  point,  and  this  gives  rise 

12 


to  the  suspicion,  at  least,  that  the  steel  mills  do  not  permit 
production  in  the  Chicago  district  to  approximate  capacity 
too  closely. 

Therefore,  if  this  suspicion  is  justified — and  it  is  claimed 
the  actual  facts  and  figures  afford  ample  justification  for  it — 
it  goes  to  demonstrate  that  there  is  actual  regulation  by  the 
mills  of  the  flow  of  steel  supply  in  relation  to  demand,  and 
this  proves  that  the  whole  matter  is  one  of  artificial  control 
and  not  of  economic  law. 

Situation  in  Birmingham 

An  even  more  striking  illustration  that  "Pittsburgh  Plus" 
is  an  artificial  and  man-made  device  and  not  the  result  of 
economic  law,  is  afforded  by  the  case  of  Birmingham, 
Alabama. 

Birmingham  is  admittedly  a  point  of  surplus  production, 
as  it  produces  much  more  steel  than  its  normal  trade  terri- 
tory requires.  Nevertheless,  steel  is  nowhere  sold  "Birming- 
ham Plus." 

Were  Birmingham  unable  to  supply  the  normal  require- 
ments of  its  trade  territory,  then — according  to  the  theory 
of  the  mills — purchasers  of  steel  in  that  territory  should 
and  would  be  obliged  to  pay  the  Pittsburgh  mill  price, 
plus  the  full  freight  from  Pittsburgh. 

However,  Birmingham  purchasers  do  not  pay  the  full 
"Pittsburgh  Plus."  The  United  States  Steel  Corporation 
is  admittedly  in  complete  control  of  the  Birmingham  situa- 
tion, since  it  controls  almost  all  of  the  steel  production 
there.  As  a  sort  of  special  concession  to  Birmingham  by 
the  corporation,  the  full  "Pittsburgh  Plus"  of  $11.60  is 
not  charged,  but  steel  is  sold  at  the  Pittsburgh  price  plus 
an  arbitrarily  fixed  differential  of  $5  per  ton. 

Birmingham  Price  Arbitrary 

That  the  Birmingham  price  is  arbitrary  was  practically 
admitted  by  Judge  Gary  in  his  testimony  in  the  pending 
case,  as  follows: 

Q.     The  Birmingham  price  is  purely  arbitrary,  is  it  not? 
A.    What  price? 

Q.  The  price  at  Birmingham,  which  is  the  $5  differen- 
tial above  the  Pittsburgh  price. 

A.  I  think  it  is.  That  is  my  impression,  that  it  is 
arbitrary  in  the  sense  of  the  producers  insisting  upon  it, 
probably,   and  the  consumers  consenting. 

Q.  That  price  is  not  fixed  by  the  law  of  supply  and  de- 
mand down  there  at  Birmingham,  is  it? 

A.  I  cannot  answer  much  about  that,  because  I  have  al- 
ready admitted  that  I  do  not  remember  in  regard  to  it. 
I  might  make  a  mistake.  ^ 

This  situation,  the  opponents  of  "Pittsburgh  Plus"  point 
out,  is  utterly  impossible  if  the  contention  of  the  mills  that 
"Pittsburgh  Plus"  is  due  solely  to  the  workings  of  economic 
law  is  correct.  No  such  thing  as  an  arbitrary  differential 
can  be  established  or  maintained  unless  those  who  establish 
it  are  in  absolute  control  over  conditions.  Economic  law 
takes  no  account  of  arbitrary  differentials.  Manifestly,  it 
cannot  do  so.  Therefore,  so  far  at  least  as  Birmingham  is 
concerned,  the  economic  law  which  the  mills  invoke  in 
support  of  this  practice,  is  inoperative. 

If -the  law  does  not  operate  in  one  place,  it  can  hardly 


\ 


V 


\ 


be  inexorable,  and  this  indicates  that  the  practice  is  one 
which  can  be  and  is  fixed  at  will  and  is  not  solely  dependent 
upon  economic  law. 

Controlled  by  Mills 

That  the  Birmingham  situation  is  the  result  of  control 
is  shown  both  by  the  testimony  of  Col.  Bope  in  the  pending 
c««,  and  by  minutes  of  the  Carnegie  Steel  Corporation, 
introduced  in  evidence  in  the  famous  "dissolution"  suit 
brought  against  the  United  States  Steel  Corporation  some 
years  ago.  This  shows  that  the  question  of  making  Birming- 
ham  a  basing  point  for  steel  was  discussed  at  many  meetings 
of  the  directors  of  the  Carnegie  company.  This  followed 
agitation  started  by  a  manufacturing  concern  in  Knoxville, 
Tennessee,  which  had  circularized  other  manufacturers  in 
the  south  asking  them  to  stop  dealing  with  the  Tennessee 
Coal  and  Iron  Company — the  United  States  Steel  Corpora- 
tion's Birmingham  subsidiary — until  Birmingham  was  made 
a  basing  point. 

The  sales  manager  of  the  Tennessee  Coal  and  Iron  Com- 
pany strongly  urged  that  this  request  be  granted,  but  Judge 
Gary,  at  one  of  the  meetings,  suggested  that  **the  matter 

be  gone  into  carefully  from  the  standpoint  of  the 
results  to  ourselves,  and  that  it  then  be  given  full 
consideration."  He  added  his  belief  that  "it  will  event- 
ually be  thought  adviable  to  make  both  Chicago 
and  Birmingham  basing  points." 

This  matter  was  discussed  at  several  meetings  and  William 
E.  Corey,  later  president  of  the  United  States  Steel  Cor- 
poration ;  Charles  M.  Schwab,  its  then  president,  and  others 
took  leading  parts  in  the  discussion,  all  of  them  opposing 
the  granting  of  the   Birmingham   request. 

Concession  Is  Made 

While  this  request  was  never  granted  in  full  measure, 
a  concession  was  later  made  which  substituted  an  arbitrary 
differential  of  $3  per  ton  at  Birmingham  for  the  full  *Titts- 
burgh  Plus"  charge,  and  with  the  increase  of  freight  rates 
in  1920,  this  differential  was  increased  to  $5  per  ton* 

These  minutes  and  the  actual  facts  strongly  suggest  not 
only  that  the  United  States  Steel  Corporation,  and  not  an 
economic  law,  controls  the  Birmingham  situation,  but  that 
on  the  statement  of  Judge  Gary  himself,  the  corporation 
has  it  Within  its  arbitrary  power  to  make  both  Birmingham 
and  Chicago  basing  points  for  steel.  If  this  be  true,  the 
economic  law  theory,  necessarily  falls  to  the  ground* 

Situation  at  Duluth 

Duluth  is  another  producing  point  worthy  of  special  con- 
sideration. The  United  States  Steel  Corporation  has  a 
subsidiary,  the  Minnesota  Steel  Company,  which  operates 
a  mill  of  considerable  size  there.  Although  its  officials 
contend  that  production  costs  at  Duluth  are  high  and  that 
the  Duluth  mill  could  not  operate  without  obtaining  the 
additional  price  granted  by  the  "Pittsburgh  Plus"  practice, 
superficially  it  would  seem  that  Duluth  is  well  situated 
for  the  production  of  steel,  and  it  is  contended  by  Duluth 
interests  that  steel  can  be  produced  there  economically. 

14 


i 


4 

'i 


Duluth  is  closer  to  the  actual  iron  ore  than  any  other 
steel  producing  center  in  the  north.  Nearly  all  of  the  iron 
ore  used  by  northern  steel  mills  is  hauled  to  Duluth  by 
railroad  and  shipped  from  there  to  these  various  other  mills. 

The  Duluth  labor  situation  is  said  to  be  good,  and  the 
principal  other  elements  entering  into  the  production  cost — 
coke  and  limestone — while  they  must  be  hauled  a  long 
distance,  can  be  hauled  cheaply  by  water. 

The  "Pittsburgh  Plus"  charge  at  Duluth  is  $12.  Even 
granting  that  the  producing  cost  at  Duluth  is  higher  than 
at  Pittsburgh  and  other  points,  this  tremendous  differential, 
the  Duluth  interests  claim,  is  far  greater  than  any  possible 
difference  in  production  cost. 

A  Surplus  Producer 

The  point  is  also  made  that  more  than  half  of  the  Duluth 
mill's  product  is  shipped  in  a  semi-finished  form  to  mills 
in  Wisconsin,  Illinois  and  Indiana  for  re-rolling  into  fin- 
ished forms.  This  means  that  the  Duluth  mill  absorbs  a 
great  deal  of  the  freight  differential.  This  would  tend 
to  indicate  that  Duluth  produces  more  steel  than  its  trade 
territory  requires  and  is  therefore  a  point  of  surplus  pro- 
duction. On  the  contention  of  the  mills  that  districts  of 
surplus  production  fix  the  price,  then,  without  regard  to 
cost  of  production  at  Duluth,  steel  prices  should  be  based — 
for  that  territory,  at  least — upon  Duluth.  Nevertheless, 
Duluth  steel  purchasers  pay  the  full  "Pittsburgh  Plus." 

There  are  also  similar  anomalies  at  other  points  of  pro- 
duction. Cleveland,  Buffalo,  Youngstown  and  other  produc- 
ing centers,  probably  produce  more  steel  than  their  actual 
trade  territory  requirements,  yet  in  each  case,  "Pittsburgh 
Plus"  is  charged. 

Atlantic  Seaboard 

On  the  Atlantic  seaboard  there  are  several  mills,  the 
largest  being  at  Bethlehem,  a  short  distance  outside  of 
Philadelphia,  and  at  Sparrow's  Point,  Maryland,  a  short 
distance  outside  of  Baltimore.  Both  are  owned  by  the 
Bethlehem  Steel  Company. 

A  great  deal  of  steel  is  shipped  into  the  territory  normally 
tributary  to  Bethlehem,  much  of  it  coming  from  Pittsburgh, 
yet  Bethlehem  ships  into  Pittsburgh  and  also  into  the  west. 
This  goes  to  prove  that  no  reliance  can  be  placed  upon 
the  fact  that  Pittsburgh  ships  considerable  steel  into  other 
districts. 

It  seems  clear  that  the  so-called  Pittsburgh  market  is  an 
arbitrary  one  and  the  basing  of  prices  upon  that  market  is 
also  arbitrary.  If  it  can  be  shown  that  this  arbitrary  prac- 
tice works  a  hardship  and  disadvantage  to  the  entire  country, 
restrains  competition  and  handicaps  industry,  then  the  case 
against  the  practice  is  complete  and  the  justification  of  eco- 
nomic law  is  shown  to  be  futile. 

Points  of  Surplus  Production 

There  is  cumulative  evidence  on  this  point  when  the 
making  of  various  steel  products  is  considered.  It  is  shown, 
for  illustration,  that  Pittsburgh  is  not  the  point  of  surplus 
production   of    steel    sheets,    but   that   these    are    produced 

IS 


I 


mainly  in  Ohio.  Ohio  produces  approximately  56  per  cent 
of  all  of  the  steel  sheets  made  in  the  United  States*  The 
entire  state  of  Pennsylvania  produces  annually  only  21  per 
cent,  on  the  average. 

Yet,  steel  sheets  are  consistently  sold  "Pittsburgh  Plus/* 
Why  should  this  be  if  the  economic  law  invoked  to  justify 
''Pittsburgh    Plus"    rests    upon    the    ''surplus    production'' 

theory? 

The  case  of  wire  and  wire  nails  is  even  more  striking. 
The  average  annual  production  of  wire  nails  in  the  entire 
country  is  12,000,000  kegs.  The  western  capacity  for  the 
production  of  nails  is  over  7,000,000  kegs  annually.  The 
"surplus  production"  theory  cannot  have  relation  to  wire 
nails,  since  the  west  has  the  capacity  to  produce  60  per 
cent  of  the  country's  entire  production  and  uses  by  no 
means  this  amount.  But  the  west  must  nevertheless  pay 
the  "Pittsburgh  Plus"  impost  on  all  nails  it  consumes. 

Pig  Iron 

More  striking  illustrations  of  the  curious  workings  of 
this  economic  law  are  afforded  by  consideration  of  pig  iron 
and  steel  rails. 

Neither  of  these  products — ^both  closely  related  to  rolled 
steel  and  presumably  conforming  to  the  same  economic 
laws — seems  subject  to  this  law. 

Pig  iron  is  produced  throughout  the  country  in  hundreds 
of  furnaces,  largely  under  separate  ownership.  This  pro- 
duction is  not  subject  to  as  close  control  as  that  of  steel. 

There  is  no  hard  and  fast  rule  for  price-fixing  on  pig 
iron.    It  is  usually  sold  f.o.b.  furnace,  or  point  of  production. 

What  mysterious  economic  process  attaches  itself  to  pig 
icon  by  which  it  is  sold  upon  one  base  before  entering  a 
converter,  and  upon  another  when  it  emerges  from  the 
converter  as  steel?  Manifestly,  if  the  law  of  supply  and 
demand  theory  holds  true  in  steel,  it  must  hold  true  also 
in  other  basic  commodities,  and  certainly  in  a  basic  com- 
modity so  closely  related  to  steel  as  is  pig  iron. 

Attempts  have  been  made  to  sell  pig  iron  on  a  single 
Birmingham  base,  or  "Birmingham  Plus."  Owing  to  the 
number  of  independent  furnaces  operating  without  close 
business  relations  with  each  other,  it  is,  however,  practically 
impossible  to  dictate  rules  of  practice  for  the  sale  of  this 
commodity.  Since  pig  iron  is  sold  "furnace  base,"  or  "f.o.b. 
furnace,"  the  opponents  of  "Pittsburgh  Plus"  insist  this 
proves  definitely  that  "Pittsburgh  Plus"  does  not  owe  its 
existence  to  economic  law,  but  to  control  by  the  dominating 
steel  producers. 

Rails 

The  case  of  steel  rails  is  perhaps  even  more  illuminating. 
Pittsburgh,  admittedly,  is  not  the  surplus  producer.  The 
greatest  production  center  for  rails  is  the  Chicago  steel 
district. 

The  annual  tonnage  of  rails   produced  by  the   mills   is 

.  enormous.     On  the  "surplus  production"  theory,  therefore. 

^Chicago  should  be  the  basing  point  on  steel  raik     That  is. 

Ithey  should  be  sold  "Chicago  Plus.''     But  this  h  not  the 

Vase.     Neither  are  they  sold  "Pittsburgh  Plus."     In  fact. 

Id 


I 


H 


Steel  rails  are  sold  "mill  base,"  or  "f.o.b.  mill,''  or  point 
of  production. 

The  opponents  of  "Pittsburgh  Plus"  assert  that  rails 
are  sold  on  a  mill  base  because  the  railroads  refuse  to  buy 
them  on  any  other  basis.  They  say  the  railroads  know  all 
about  basing  points  and  mythical  freight  rates  and  decline 
to  pay  any  freight  except  that  which  is  earned.  They  say 
further  that  in  the  event  it  was  sought  to  impose  the  "Pitts- 
burgh Plus"  charge  upon  rails,  the  railroads  would  solve 
the  problem  by  buying  their  rails  in  Pittsburgh  and  getting 
the  benefit  of  the  actual  haul.  But,  since  the  railroads 
decline  to  submit  to  this  exaction,  the  "law  of  supply  and 
demand"  very  graciously  steps  aside  and  permits  the  roads 
to  purchase  their  rails  in  the  same  manner  in  which  most 
commodities  other  than  steel  are  bought. 

This  contention  seems  to  be  upheld  by  the  evidence  in 
the  pending  case,  both  from  the  testimony  of  Col.  Bope 
and  Judge  Gary.  Col.  Bope  admitted  the  fact  in  his 
testimony,  which  was  partly  as  follows: 

Q.    How  are  rails  based? 

A.  I  dcxn't  know  how  rails  are  sold  today;  I  imagine  they 
are  sold  f.  oT  b.  mill,  but  in  the  old  days  there  was  a 
Pittsburgh  price.  They  did  not  take  the  full  freight,  how- 
ever, there  was  a  differential,  which  was  of  benefit  to  the 
railroads.  They  were  not  handicapped  by  being  made  to 
pay  full  freight  rates.  The  idea  of  the  steel  mills  has 
^always  been  to  cater  to  the  railroads.  *  *  ♦  *  ♦ 

Q.  Were  the  Chicago  mills  pretty  large  producers  of 
rails  at  the  time  you  speak  of,  there  being  a  higher  price 

for  rails? 

A.  Yes;  Chicago  always  has  been  the  largest  pro- 
ducer of  rails  in  the  country. 

Q.  What  is  the  reason  that  rails  arc  not  sold  on  the 
Pittsburgh  basis? 

A.  Because  the  customers  are  so  widely  distributed,  the 
railroads  run  from  different  sections  of  the  country,  and 
they  reach  different  markets,  and  it  was  never  felt  that  they 
should  be  put  on  the  basis  of  ordinary  customers. 

Q.  What  is  the  difference  between  them  and  the  ordinary 
customer  ? 

A.  The  reasons  I  have  given,  the  desire  on  the  part  of 
the  mills  to  at  all  times  help  the  railroads  in  their  expan- 
sion and  growth,  and  because  of  the  fact  that  for  so  many 
years  the  railroads  took  75  per  cent  of  the  steel  product  of 
the  country. 

Fixing  Rail  Prices 

Judge  Gary  also  admitted,  in  effect,  that  rails  operate 
under  a  different  system  from  other  forms  of  rolled  steel. 
His  testimony  was  in  part  as  follows: 

Q.  Was  there  any  other  period  outside  of  that  which 
you  have  just  mentioned  where  the  rail  mill  producers  did 
not  have  uniform  prices? 

A.  Well,  I  might  answer  that  question  this  way:  Per- 
haps it  would  be  fair  to  say  that  for  a  great  many  years 
the  same  price  was  maintained  by  the  railroads  generally. 
The  price  of  $28  was  fixed,  I  should  think,  about  1899, 
and  that  was  really  by  agreement  between  Mr.  Cassatt 
(A.  J.  Cassatt,  president  of  the  Pennsylvania  Railroad 
Company)  and  myself.  That  was  considered  to  be  a  fair 
orice.  Then  Cassatt  spoke  for  a  great  many  railroads  and 
that  price  was  maintained,  that  $28,  for  a  great  many  years, 
because  we  refused  to  advance  the  price,  notwithstanding 
that  it  should  have  been  a  great  deal  higher  on  rails. 

.  17 


./. , 


idUl^ 


riM 


! 


Q.  Did  the  railroads  refuse  to  pay  the  "Pittsburgh  Plus'' 
charge  on  rails? 

A.  I  don't  think  the  ''Pittsburgh  Plus"  question  ever 
came  up  with  them. 

This  presents  an  interesting  problem.  The  testimony 
of  Judge  Gary  shows  conclusively  that  the  steel  mills  had 
it  in  their  power  to  fix  prices  at  their  pleasure,  even  before 
the  present-day  consolidations  of  steel  mill  interests  made 
control  easier.  He  shows  this  in  his  testimony  to  the  effect 
that  he,  on  behalf  of  the  mills,  and  Mr.  Cassatt,  on  behalf 
of  the  railroads,  made  an  arbitrary  price  of  $28  per  ton 
m  rails. 

Col.  Bope  showed  that  Chicago  has  for  many  years  been 
the  point  of  surplus  production  on  rails.  Yet,  he  showed 
that  rails  were  for  a  considerable  time  sold  on  a  modified 
"Pittsburgh  base,"  and  later,  according  both  to  Col.  Bope 
and  Judge  Gary,  they  were  sold  f.o.b.  mill,  at  a  fixed  price 
for  all  mills. 

Hdw  does  this  square  with  the  law  of  supply  and  demand 
which  the  mills  protest  is  solely  responsible  ^for  "Pittsburgh 

Plus  ?" 

Does  it  not  show  that  the  entire  practicejs  arbitrary  and 
under  the  absolute  control  of  the  mills? 

Steel  Mill  Capacities 

Since  the  mills  base  their  defense  of  "Pittsburgh  Plus" 
upon  the  "surplus  production"  theory,  an  inquiry  into  the 
relative  producing  capacities  of  the  various  steel  districts 
is  pertinent. 

Production  and  consumptive  figures  are  solely  in  posses- 
sion of  the  mills,  which  do  not  give  them  out.  Neverthe- 
less, it  is  possible  to  obtain  the  rated  capacities  of  the  various 
steel  mills  of  the  country  through  official  publications,  and 
these  throw  considerable  light  upon  the  subject. 

As  already  shown,  Pittsburgh  is  not  the  point  of  surplus 
supply  on  steel  sheets,  this  being  somewhere  in  the  state  of 
Ohio.  Ohio  also  produces  the  greatest  quantity  of  strip 
steel  of  any  state.  Pennsylvania  has  never  been  the  surplus 
producer  of  concrete  reinforcing  bars.  The  west  produces 
from  40  to  45  per  cent  of  this  product.  Pittsburgh  is  not 
the  point  of  surplus  supply  of  wire  and  nails.  In  the  case 
of  rails,  Chicago  is  the  point  of  surplus  supply,  but  rails 
are  not  sold  in  the  same  manner  as  other  steel  products. 

^Chicago  also  admittedly  produces  a  huge  quantity  of  mer- 

Ichant  bars,  probably  a  surplus. 

Careful  study  of  mill  capacities,  therefore,  shows  that 
Pittsburgh  is  no  longer  the  point  of  surplus  production  on 
all  steel  products.  On  the  other  hand,  there  is  evidence 
that  in  "flush  times,"  Pittsburgh  mills  are  usually  the  first 
to  fill  up  with  orders,  the  point  of  greatest  consumptive 
demand  being  in  the  east.  Consequently,  in  such  times 
Pittsburgh  has  no  "surplus"  from  which  to  supply  deficiencies 

elsewhere.  ^ 

It  IS  hard  to  determine  the  point  of  surplus  production. 
It  is  extremely  doubtful  if  there  is  such  a  thing  as  "a  point 
of  surplus  supply"  for  the  entire  country.  Pittsburgh  once 
occupied  that  position,  but  does  so  no  longer.  This  is  shown 
by  the  following  testimony  of  Col.  Bope: 


**But  now  there  are  other  steel  centers,  which  are  per- 
haps as  preponderating  in  manufacture  as  Pittsburgh.  You 
cannot  always  maintain  the  state  of  affairs  and  have  it 
exctly  the  same  as  it  was  and  has  been  for  ten,  fifteen  or 
twenty  years,  because  new  situations  arise." 

Steel  Mill  Consolidations 

The  opponents  of  "Pittsburgh  Plus"  assert  that  if  this 
practice  is  upheld  by  the  courts  and  not  disturbed  by  con- 
gressional action,  the  system  will  be  more  firmly  fastened 
upon  the  country  than  ever. 

That  is  because  the  steel  industry,  now  strongly  controlled 
by  a  relatively  few  organizations,  shows  constant  indica- 
tions of  coming  under  still  closer  and  firmer  control.  The 
closer  the  control,  the  more  effective  the  agency  for  price 
dictation. 

The  formation  of  the  United  States  Steel  Corporation 
itself  eliminated  much  competition  and  enabled  the  mills 
to  impose  "Pittsburgh  Plus"  as  general  practice.  If  other 
great  mill  mergers  are  consummated — and  there  are  constant 
rumors  of  them — competition  will  be  still  more  greatly 
lessened. 

At  present  four  organizations,  taken  together,  easily  con- 
trol the  entire  industry;  Only  a  year  and  a  half  ago  there 
was  a  great  merger  consummated — that  of  the  Bethlehem 
and  Lackawanna  corporations,  which  shortly  afterward 
acquired  the  Midvale  Steel  and  Ordnance  Company,  which 
a  few  years  prior  thereto  had  absorbed  the  Cambria  Steel 
Company.  The  Youngstown  Sheet  and  Tube  Company,  in 
anothel-  merger,  acquired  the  Steel  and  Tube  Company  of 
America. 

In  1922  reports  of  mergers  filled  the  air.  A  merger  of 
seven  large  independent  producers  was  being  negotiated, 
these  being  the  Republic  Iron  and  Steel  Co.,  the  Midvale 
Steel  and  Ordnance  Co.,  the  Lackawanna  Steel  Co.,  the 
Youngstown  Sheet  and  Tube  Co.,  the  Inland  Steel  Co.,  the 
Steel  and  Tube  Company  of  America  and  the  Brier  Hill 
Steel  Co. 

Mergers  Effected 

This  fell  through,  whereupon  the  merger  of  the  Bethlehem 
and  Lackawanna  companies  was  effected.  This  was  shortly 
followed  by  a  three-company  merger,  the  Republic,  Inland 
and  Midvale  companies  combining  into  what  was  known 
as  the  North  American  Steel  Corporation.  Complaints 
against  both  the  Bethlehem-Lackawanna  aftd  North  Amer- 
ican mergers  were  filed  by  the  Federal  Trade  Commission. 
As  a  result,  the  North  American  company  disintegrated. 
The  Bethlehem-Lackawanna  consolidation  then  absorbed  the 
MidVale  company.  Still  later,  the  Youngstown  Sheet  and 
Tube  Company  absorbed  the  Steel  and  Tube  Company  of 
America  and  the  Brier  Hill  Steel  Company. 

Thus,  within  the  past  two  years  four  strong  independent 
steel  producers,  the  Lackawanna,  Midvale  and  Brier  Hill 
companies  and  the  Steel  and  Tube  Company  of  America, 
have  been  withdrawn  as  independent  entities. 

19 


■iM^^kMiitfy^M. 


Control  Is  Close 

As  showing  how  close  is  the  present  control  of  the 
country,  the  following  table  of  ingot  capacities  of  the  leading 
producers  is  edifying: 

Annual 
Company  Ingot  Capacity 

Gross  Tons 

United  States  Steel  Corporation 22,500,000 

*Bethlehem-Lackawanna-Midvale  Consolidation. .     8,000,000 

Youngstown  Sheet  &  Tube  Company 3,000,000 

Jones  k  Laughlin  Steel  Corporation 2,640,000 

Republic  Iron  &  Steel  Company 1,395,000 

Inland  Steel  Company 1,200,000 

This  means  an  ingot  capacity  of  38,735,000  tons,  out  of 
a  total  capacity  for  the  entire  country  of  approximately 
56,000,000  tons,  or  about  70  per  cent,  held  in  the  hands 
of  six  producers.  If  this  tendency  toward  consolidation  is 
carried  further,  control  will  be  vested  in  still  fewer  hands, 
anil  the  fear  that  "Pittsburgh  Plus"  will  be  saddled  forever 
upon  the  nation  seems  well  founded,  regardless  of  economic 
conditions  or  changes. 

Basing  Points  in  Other  Industries 

Another  pertinent  inquiry  in  this  controversy  is  with 
reference  to  customs  in  other  industries.  On  the  "surplus 
production"  theory  of  the  mills,  if  Pittsburgh  is  the  sole 
basing  point  for  steel  because  of  the  rigid  demands  of  an 
economic  law,  then  there  should  be  a  single  basing  point  m 
every  other  industry  where  like  conditions  obtain. 

Assuming  Pittsburgh  to  be  the  point  of  surplus  steel 
supply,  then  any  other  industry  in  which  there  is  a  pre^ 
ponderating  point  of  supply  would  necessarily  be  responsive 
to  the  same  economic  law.  /  ^^ 

It  has  been  shown   that  this  so-called   "economic  law 
does  not  apply  to  pig  iron  and  rails,  although  Birmingham 
is  perhaps  the  greatest  source  of  surplus  supply  of  the  former, 
and  Chicago  is  undoubtedly  the  point  of  surplus  supply  of 
the  latter  commodity. 

Cement,  lumber,  sugar,  oil,  grain  and  certam  other  com- 
modities have  their  prices  based  on  certain  points.  In  most 
cases  there  are  several  such  points  and  in  several  instances-- 
such  as  cement — there  is  a  system  of  so-called  "zone  bases," 
by  which  the  country  is  divided  into  zones  and  the  prices 
in  each  zone  are  based  upon  a  point  approximately  in  the 
center  of  it.  All  of  these  are  more  or  less  convenient 
methods  of  price-fixing.  u    tt   •    j 

In  this  connection  it  is  interesting  to  note  that  the  United 
States  District  (>urt  of  the  Southern  District  of  New  York, 
in  a  decision  rendered  October  23,  1923,  by  District  Judge 
Knox,  held  illegal  "The  Cement  Manufacturers  Protective 
Association/'  including  the  leading  manufacturers  of  cement. 
Judge  Knox  based  his  decision  in  part  upon  the  fact  that 
cement  was  charged  for  at  a  delivered  price,  including  the 
rail  freight  from  a  basing  point,  which  failed  to  give  pur- 
chasers the  advantage  of  cheaper  transportation. 

Operates  to  Raise  Prices 

"Pittsburgh  Plus"  carries  this  price  basing  theory  to  the 
final  degree.     The  "Pittsburgh  Plus"  controversy  involves 

20 


"w 


the  Entire  question  of  basing  points  in  industry.  Should 
the  present  practice  be  upheld  by  the  courts  and  not  dis- 
turbed by  legislative  action  there  is  excellent  ground  for 
the  belief  that  a  vast  change  in  pricing  methods  is  imminent. 
This  change  would  put  the  consumer  largely  at  the 
niercy  of  the  producer  and  would  unquestionably  result  in 
a:  higher  level  of  commodity  prices,  especially  in  times  of 
keen  demand.  There  is  no  doubt  that  "Pittsburgh  Plus" 
operates  to  raise  prices.  This  was  admitted  by  Judge  Gary 
in  his  testimony,  in  which  he  states:  rf 

"Tittsbqrgh  Plus'  when  it  is  in  force,  of  course,  makes     4 
steel  cost  more."  ^ 

Further    evidence    that    "Pittsburgh    Plus"    operates    to 
irtcrease  prices  was  recently  afforded   from  an  unexpected 
source.      The    Interstate    Commerce    Commission,    passing 
upon  an  application  for  increase  in  rates  on  steel  from  the 
Pittsburgh-Buffalo .  territories  and   territories  east,   to  VirT 
ginia  cities  and  points  taking  the  same   rates,   denied   the, 
applicjaiion  and  based  its  denial  krgely  upon  the  fact  that, 
this  would  increase  the  cost  of  steel  to  consumers  in  the, 
territory  affected.     This  decision  is  reported,  on  page   1067 
of  the  October  18,  1923,  issue  of  The  Iron  Age.     The  dic- 
tum of  the  commission  on  this  subject  is  as  follows: 

'*In  the  iron  and  steel  industry  the  price  of  steel  articles, 

*  outside  of  Pittsburgh,  wherever  manufactured,  is  the  Pitts- 
burgh price  plus  the  freight  rate  from  Pittsburgh  to  des- 
tination. Because  of  this  so-called  Pittsburgh  basing  point 
for  steel  practice,  aji  increase  in  the  freight  rate  from 
Pittsburgh  increases  in  like  manner  the  price  of  steel,  no  ' 
matter  where  the  purchase  is  made.     This,  however,   re- 

*  spondents  state,  is  no  fault  of  theirs,  and  they  do  not  benefit 
therefrom."  ^  ^ 

This  action  of  the  Interstate  Commerce  Commission  indi- 
cates clearly  that  the  contention  that  the  "Pittsburgh  Plus'*| 
practice  in  steel  is  unique  in  industry  is  sound,  else  no 
particular  reference  would  have  been  niade  to  it.  The 
Interstate  Commerce  Commission,  in  applications  for  changes 
in  freight  rates,  deals  with  all  phases  of  industry  and  its 
manner  of  reference  to  this  case  is  pretty  conclusive  evidence 
that  steel  occupies  a  position  unlike  that  of  any  other  indus- 
try in  its  methods  of  price-fixing  and  price  basing. 

This  also  tends  to  support  the  contention  that  there  is 
no  general,  economic  law  applicable  to  industry  such  as 
is^'invoked  by  the  steel  mills  in  justification  of  "Pittsburgh 
Plus." 

^  Primacy 

It  is  the  contention  of  the  mills  that  the  economic  law 
by  which  they  justify  this  practice  automatically  provides 
that  when  primacy  in  steel  production  passes  from  Pittsburgh 
to  any  other  producing  center,  "Pittsburgh  Plus"  will  auto- 
matically disappear.     Judge  Gary  in  his  testimony  said: 

"This  Pittsburgh  basing  proposition  is  not  the  result  of 
any  combination,  or  any  illegality,  but  grew  up  naturally, 
has  been  maintained  naturally,  and  has  largely  disappeared 
naturally,  because  of  competition.  This  law  of  supply  and 
,  demand  has  brought  it  about  *****  and  you  cannot 
control  that." 

"Now,  as  to  when  that  will   happen    (the  end  of  Titts. 
burgh  Plus*)   I  do  not  know;  but  this  law  of  supply  and|  , 
demand,  which  is  influenced  by  competition,  will   regulate 

21 


4 


it.     Perhaps   as  to  some  things,  never;   but  as  to  steel,  I 

should  say  it  will  come  in  time.    I  think  so.    I  think  Chi- 

cago  will  be  a  base  at  some  time.     It  is  pretty  nearly  that 

now  in  practice.     I  think  it  will   be  a  long  time  before 

Dnluth  will  become  a  base  like  Pittsburgh." 

Richard  V.  Lindabury,   senior  counsel   for   the   United 

States  Steel  Corporation,  in  his  argument  before  the  Federal 

Trade  Commission  in  1920,  made  the  following  statement: 

"When  western  production  equals  western  consumption, 
assuming  that  it  does  not  now  so  equal  it,  then  Pittsburgh 
primacy  will  pass.  •  •  •  *  I  believe  that  point  has  been 
reached  today,  but  I  am  not  sure.  *  *  *  *  In  another  five 
or  ten  years,  if  left  to  itself,  'Pittsburgh  Plus'  will  auto- 
matically disappear." 

As  has  been  shown,  there  are  other  districts  which  already 
surpass  Pittsburgh  in  the  production  of  certain  steel  products. 
It  is  contended  that  under  normal  and  untrammeled  condi- 
tions, without  steel  supply  being  regulated  by  the  mills  in 
their  own  interests,  Pittsburgh's  primacy  would  even  now 
have  passed.  The  Birmingham  situation  is  cited  as  showing 
that  in  its  own  trade  territory  Birmingham  occupies  a 
position  of  primacy,  but  nevertheless  is  not  a  basing  point. 

How  can  any  other  steel  district,  no  matter  how  well 
equipped  naturally  for  economical  steel  production,  obtain 
primacy  so  long  as  the  steel  mills  are  enabled  to  conserve 
inviolate  their  Pittsburgh  investments  through  the  operation 
of  "Pittsburgh  Plus?" 

If  the  point  of  primacy  has  already  passed,  or  is  at  the 
passing  stage,  as  intimated  by  both  Judge  Gary  and  Mr. 
Lindabury,  why  is  "Pittsburgh  Plus"  still  maintained  and 
why  do  the  steel  mills  still  fight  any  attempt  at  its  abolition  ? 

The  opponents  of  the  practice  maintain  that  Pittsburgh's 
primacy  is  only  supported  by  the  concerted  action  of  the 
mills  in  regulating  the  output  of  the  several  steel  districts. 
They  point  out  that  the  hope  held  forth  that  "Pittsburgh 
Plus"  will  automatically  disappear  in  five  or  ten  years,  as 
suggested  by  Mr.  Lindabury,  has  been  a  sort  of  nebulous 
promise  for  a  long  time,  but  that  no  actual  progress  toward 
the  abolition  of  the  "Pittsburgh  Plus"  practice  has  been 
apparent. 

A  speech  made  by  Col.  Bope  as  far  back  as  the  early 
part  of  the  year  1911  and  reported  in  The  Iron  Age  of 
February  2  of  that  year  indicates  that  even  then  Pitts- 
burgh's "primacy"  was  passing.  Col.  Bope,  then  sales 
manager  of  the  Carnegie  Steel  Company,  an  important  figure 
in  the  steel  world  and  an  important  cog  in  the  human 
mechanism  of  the  United  States  Steel  Corporation,  ma^ 
the  following  statement: 

**Hcrc  in  Pittsburgh  we  have  the  competition  of  every 

large  plant  outside  of  Chicago  and  that  competition  is  be- 
ming  serious,  because  the  handwriting  is  on  the  wall  for 

file  plants  located  east  of  the  Allegheny  mountains. 

With  Chicago  made  a  basing  point,  it  will  be  absolutely 
miiossible  for  any  plant  east  of  the  Allegheny  moun- 
ftins  to  place  its  product  in  the  Chicago  district  or  west, 
nd  it  is  going  t®  be  difficult  for  Pittsburgh,  handicapped  as 
t  will  be,  unless  there  is  some  concession  on  the  freight  rate 
f  $3.60  per  ton   (the  freight  rate  from  Pittsburgh  to  Chi- 

'cRgo  at  that  time)  ^ 

This  entire  suggestion  that  Pittsburgh's  primacy  is  respon- 

22 


.i 


t 


-  4 


siblc  for  the  continuance  of  "Pittsburgh  Plus"  is  ridiculed 
by  the  opponents  of  the  practice,  who  pertinently  point  out 
that  this  is  an  argument  which  describes  a  vicious  circle, 
the  center  of  which  is  the  self-interest  of  the  mills.  The 
mills  say  that  "Pittsburgh  Plus"  is  dependent  upon  "Pitts- 
burgh primacy,"  and  the  facts  show  that  this  "primacy" 
itself  rests  entirely  upon  the  "Pittsburgh  Plus"  practice. 

The  "Pittsburgh  primacy"  argument  seems  hardly  entitled 
to  much  respect  when  its  principal  proponents  are  in  doubt 
whether  such  primacy  actually  exists. 

As  far  back  as  1911,  and  even  earlier,  as  Col.  Bope's 
speech  shows,  the  matter  of  Chicago's  becoming  a  basing 
point  was  acute  and  was  feared  in  Pittsburgh.  Even  then, 
and  with  a  freight  differential  of  only  $3.60,  Pittsburgh's 
primacy  was  insecure  and  apparently  would  have  disappeared 
but  for  "Pittsburgh  Plus."  This  indicates  that  Pittsburgh's 
"primacy"  could  hardly  continue  were  it  not  for  the  artificial 
support  which  "Pittsburgh  Plus"  affords. 

Slack  and  Flush  Times 

The  steel  mills  contend  that  "Pittsburgh  Plus"  only  oper- 
ates in  so-called  "flush"  times,  when  demand  generally 
exceeds  supply,  and  disappears  in  "slack"  times,  when  supply 
exceeds  demand. 

This,  they  say,  substantiates  their  law  of  "supply  and 
demand"  or  "surplus  production"  theory,  by  showing  that 
when  demand  elsewhere  is  acute,  Pittsburgh  must  supply 
the  shortage,  while  when  demand  is  slack  and  Pittsburgh  is 
not  called  upon  to  supply  this  shortage,  "Pittsburgh  Plus" 
goes  by  the  board. 

The  facts  do  not  seem  to  warrant  this  claim.  The 
statement  attributed  to  the  late  Andrew  Carnegie  that  "steel 
is  either  prince  or  pauper"  appears  true.  Steel  is  recognized 
as  the  most  reliable  trade  barometer.  During  general  pros- 
perity the  steel  trade  is  usually  "prince,"  while  during 
industrial  depression  it  is  "pauper." 

While  "flush  times"  have  considerably  outweighed  "slack 
times"  since  1901,  there  have  been  several  depressions,  yet 
"Pittsburgh  Plus"  was  constantly  operative  up  to  1921 
except  for  four  brief  periods,  in  one  of  which  the  deviation 
from  the  practice  was  solely  in  response  to  a  dictum  of  the 
War  Industries  Board  in  1917. 

The  other  periods  prior  to  1921  during  which  there  was 
a  departure  from  the  "Pittsburgh  Plus"  practice  were  in 
1909,  for  a  few  weeks,  in  1911  and  in  1914,  for  a  similar 
time. 

Held  During  Depression 

The  1909  period  is  interesting.  Col.  Bope's  testimony 
regarding  steel  prices  at  this  time  is  as  follows: 

"We  had  gotten  to  the  point  in  1907  that  there  was  a 
money  panic.  It  was  not  a  business  panic  at  all.  The^ 
were  trying  to  make  one  dollar  do  the  work  of  ten  dollars, 
and  all  of  a  sudden  it  snapped  and  the  money  situation 
got  extremely  bad.  The  only  way  to  save  the  situation 
was  to  maintain  prices  until  liquidation  could  take 
place  on  the  part  of  the  buyers  who  had  large  stocks." 

**The  first  break  in  price  was  made  by  the  Illinois  Steel 
Company   in    May  of    1908,   through   a   misunderstanding, 

'  23 


I      and  when  that  was  done  all  our  competitors  thought  thev 
^    'had  the  right  to  do  the;  same  thing,  and  there  wds  a  con- 
'     sidentble  <!:utting  in  prices.    After  the  misunderstanding  was 
cfcared  up  tbey  went  back,  for  the  purpose  I  have  men- 
tioned, to  protect  ilheir  own  customers.  *   ♦   ♦   In  February 

off  190? was  . when  the  general  break  and  demoralization 

occurred."  , 

He  further  tjcstified  that  there  was  no  general  cutting 

prices  at  all  during  1907  or  1908--except  for  the  brief 
[period  in  1908  **due  J;p  a  misunderstanding'' — until  the  end? 
of   1908,  when  other  niiils  began  to  cut  and  the  United 
States  J  Steel   Corporation   formally  withdraw  its  published 
prices  in  February,  19Q9y  for; a  brief t period, 

f  This  seems  absolutely  to  demolish  the  daip  of  the  mills, 
that  "Pittsburgh  Plus' V  automatically  disappears  in  *'slack 
times."  The  real  "^a^k  times,"  according  to  Col.  Bope's 
testimony,  were;  in  190S,  and;  yet  the  mills  were  able  toi 
fc^ep  up  prices,  in  order  to  protect  customers  who  had  large 
stocks  on  hand. 

This  is  not  normal  economic  law.  ,  The,  fact  that  these 
large  stocks  were  on  hand  shows  that  supply  was  consid- 
erably in  excess  of  dertaand,  but  the  price  was  maintained 
and  the  "Pittsburgh  Plus"  charge  was  in  full  effect,  despite 
the  existence  of  a  condition  whichf  according  tO'the  mills,> 
should  have  automatically  brought  about  its  disappearance.* 

If  the  United  States  Steel  Corporation^  and  the  other 
steel  millsv  dould  maintain  prices  throughout  this  admittedi 
depression,  and  conW  also  maintain  the  "Pittsburgh  Plu$" 
chkrge  d*^ng  that-  tiine^,  then  it  is  plain  enough  that  no- 
ccwiotnie  la#  automatically  causes /the  disappearance  of  thisi 
exaction  if  the  steel  mills  will  it  otherwise. 

Again  in  1921  there  was  a  depression,  and  "Pittsburgh 
Plus"  was  removed  in  the  Chicago  markei  o,.  plates,  shapes 
and  barn  aft^r  two  attempts,  had  been  made  to  stabilize  the 
market  at  lower  pricUevels. 

In  1922  there  was  a  deflrtite  industrial  boom.  Mills  all 
over  the  country  were  running  to  capacity,  with  a  huge 
tonnage  of  unfilled  orders.  Nevertheless,  in  the  Chicago 
distrirt  steel  was  not  quoted  "Pittsbu.'gh  Plus"  on  plates,^ 
shapes  and  bars,  but  for  a  considerable  time  quotati6ns  at 
Chicago  ^nd  Pittsburgh  vrere  on  k  parity  and  later — in  1923 
—this  was  modiiied  only  to  the  extent  that  Chicago  quota- 
tions ruled  $2  per  ton  higher  th^n  Pittsburgh,  despite  the 
fact  that' the  full  "Pittsburgh  Plus"  cha;rge  was  $6.80  t)er 
ton. 

During  all  of  1923,  however,  and  for  at  least  two-thirds 
of  1923,  the  full  "Pittsburgh  Plus"  charge  was  made  at: 
New  York  and  in  the  east^- but  in  the  latter  part  of  1^23 
this  price  was  shaded  slightly,  after  the  east  had  manifested 
a  more  active  interest^  in  the  fight  on  ^Tittsburgh  Plus.'' 

Marked  attention  is  directed  to  this  situation.  If  Pitts-* 
burgh  is  the  point  of  "surplus  production"  and  supplies  the 
shortage  of  other  districts  in  times  of  large  demand,  then 
during  1922  and  the  fore  part  of  1923,  "Pittsburgh  Plus" 
should  have  been  the  rule  in  the  Chicago  market,  if  Chicago 
is  a  point  of  underproduction. 

Why  were  plated,  shapes  and  bars  ^old  in  Chicago  on  a 
parity  with   or   only  slightly   abdye   the   Pittsburgh    price, 


i 


? 


with  '-Pittsburgh  Plus"  disregarded,  and  "Pittsburgh  Plus" 
maintained  in  the  east,  even  in  Philadelphia  and  Baltimore 
with  the  great  Bethlehem,  Lebanon  and  Sparrow's  Point 
mills  almost  immediately  contiguous  to  these  cities? 

If  the  reply  to  this  inquiry  should  be  that  the  Chicago 
district  is  able  to  supply  its  demand,  why  is  Chicago  not 
made  a  basing  point  on  steel?  If  Chicago  is  unable  to 
supply  its  demand  during  "flush  times,"  why  was  not  "Pitts- 
burgh Plus"  in  full  force  in  Chicago  during  these  two 
years  ? 

This  situation  seems  absolutely  at  variance  with  the  "law 
of  supply  and  demand"  and  the  "surplus  production"  justi- 
fication. The  real  reason  for  the  disappearance  of  "Pitts- 
burgh Plus"  in  the  Chicago  market  is  asserted  to  be  that 
western  consumers  of  steel  have  made  a  determined  fight 
against  this  practice  and  the  mills,  fearful  of  the  effect 
upon  the  public  mind  of  this  campaign,  did  not  dare  restore 
the  full  "Pittsburgh  Plus"  charge  at  Chicago,  the  main 
source  of  western  supply.  This,  if  true,  shows  that  the 
situation  is  well  within  the  control  of  the  mills  and  is  not 
responsive  to  a  natural  econopiic  law. 

Fostering  New  Mills 

A  further  defense  for  "Pittsburgh  Plus"  is  on  the  score 
of  the  necessity  for  the  "protection"  it  affords  in  the  upbuild- 
ing of  mills  where  the  cost  of  production  is  so  high  that  a 
differential,  or  subsidy,  is  necessary  to  enable  them  to  operate 
profitably. 

Judge  Gary  made  this  point  in  a  speech  delivered  at 
Duluth  June  12,  1918,  in  which  he  stated  that  but  for 
"Pittsburgh  Plus"  the  Duluth  mill  could  not  operate.  He 
then  asserted  that  the  cost  of  producing  steel  at  Duluth  is 
13  per  cent  higher  than  at  Pittsburgh  and  38  per  cent  higher 
than  at  Gary,  which  figures  indicate  that  steel  production 
costs  at  the  lower  end  of  Lake  Michigan  are  the  lowest  in 
the  country.  These  figures,  when  reduced  to  terms  of  per- 
centage, show  that  Gary  produces  steel  for  approximately 
18.12  per  cent  less  than  Pittsburgh. 

This  was  a  speech  which  has  since  often  vexed  the  eminent 
head  of  the  United  States  Steel  Corporation,  for  his  pro- 
duction cost  figures  have  been  widely  quoted.  In  his  testi- 
mony in  the  pending  case  he  sought  to  mitigate  them 
somewhat,  although  admitting  that  they  were  carefully 
prepared  for  him  and  were  presumably  correct  when  he 
cited  them. 

This  speech  has  also  vexed  many  of  the  heads  of  inde- 
pendent  mills.  At  the  time  it  was  made,  before  the  Duluth 
Commercial  Club,  Judge  Gary  was  endeavoring  to  explain 
why  Duluth  could  not  be  made  a  basing  point.  Several  of 
the  heads  of  United  States  Steel  Corporation  subsidiaries 
and  also  the  heads  of  most  of  the  important  independent 
producers  were  with  him  at  the  time.  Presumably  they 
agreed  with  him. 

There  are  several  such  points  where  steel  is  produced  in 
which,  so  say  the  mills,  production  costs  are  so  high  that, 
but  for  this  "protection"  of  "Pittsburgh  Plus,"  there  would 
be  no  steel  industry. 

25 


^f^m^ 


\ 


Protection  for  New  Mills 

Judge  Gary  stated,  in  his  testimony,  that  this  "protection" 
is  essential.     He  said : 

**I  said  that  a  new  plant  could  not  be  secured,  or  a  site 
to  begin  with,  at  Duluth  or  anywhere  else,  at  a  new  place, 
unless  they  had  the  protection,  probably,  of  this  Pittsburgh 
base." 

And  in  another  part  of  his  testimony  he  said : 

"Referring  again  to  Duluth,  the  producers  of  semi-finished 
products  in  Duluth  were  desirous  of  having  finishing  mills 
erected  there  by  us  so  that  they  could  buy  their  goods  there. 
We  would  not  build  there.  We  could  not  ever  build  there. 
We  couldn't  live  with  a  business  there  except  we  had  the 
benefit  of  this  plus  proposition. 

**Now,  the  reason  why  the  producer  at  Duluth  can  success- 
fully  compete  with  other  manufacturers  in  the  east,  whose 
costs  of  production  are  less,  is  because  this  added  freight 
rate  protects  him." 

Production  cost  figures  submitted  to  the  Federal  Trade 
Commission  in  the  pending  case  show  that  Duluth  costs 
are  approximately  10  per  cent  higher  than  Pittsburgh.  This 
hardly  justifies  the  "Pittsburgh  Plus"  charge  at  Duluth, 
since  the  freight  rate  from  Pittsburgh  to  Duluth  is  $12  per 
ton,  or  approximately  24  per  tent  of  the  cost  of  the  steel 
at  the  mill  there. 

This  clearly  shows  the  injustice  of  the  practice,  as  pur- 
chasers are  penalized  to  an  extent  not  at  all  comparable  to 
the  required  "protection"* — assuming  such  **protection"  is 
essential. 

Conserves  inefficient  Mills 

/'Pittsburgh  Plus"  imposes  a  hardship  upon  all  the  rest 
of  the  country  for  the  sake  of  conserving  inefficient  mills, 
and  of  yielding  a  larger  profit  from  their  operation  than  the; 
are  entitled  to^  IncLntally.  of  yielding  an  excessive  profit 
from  the  operation  of  all  other  mills. 

The  mills  contend  that  certain  mills,  admittedly  less  effi- 
cient than  others,  are  necessary,  that  the  nation  may  be 
assured  an  adequate  supply  of  steel  in  time  of  need,  and 
that  therefore  this  subsidy  or  "protection"  is  justified. 

In  reply  it  is  contended  that  the  practice  puts  an  admitted 

premium  upon  inefficiency  and  really  halts  the  construction 

.f  new  mills  at  points  best  adapted  for  steel  production  by 

nabling  the  inefficient  mills  to  flourish  and  by  conserving 

mill  investments  in  and  about  Pittsburgh,   no  longer  the 

point  of  most  efficient  or  most  economical  steel  supply. 

The  answer  of  the  Jones  &  Laughlin  Steel  Corporation 
of  Pittsburgh  to  the  application  for  a  complaint  in  the 
pending  case  asserts  that  if  "Pittsburgh  Plus*'  is  abolished, 
this  company,  to  conserve  its  western  trade,  will  be  obliged 
to  erect  a  mill  in  the  Chicago  district.  As  a  matter  of 
fact,  this  company  has,  since  making  that  statement,  pur- 
chased approximately  1,200  acres  of  land  near  Hammond, 
Indiana. 

Retards  Mill  Construction 

The  building  of  such  a  mill  would  add  measurably  to 
the  capacity  of  the  Chicago  district,  but  unless  "Pittsburgh 
Plus"  is  abolished,  this  mill  will  not  be  built.  It  is  claimed 
that  for  the  same   reason  other   steel  mill  construction   is 

26 


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being  halted  by  "Pittsburgh  Plus,''  and  that  the  steel  con- 
sumers of  the  country  are  unable  to  derive  the  benefit  of 
low-cost  production  in  Chicago  and  other  western  and 
southern  low-cost  steel  producing  centers  to  which  they  are 
entitled,  because  of  the  malign  influence  of  "Pittsburgh  Plus"  . 
in  preventing  the  construction  of  new  mills. 

^  There  is  little  doubt  that  in  the  past  "Pittsburgh  Plus" 
aided  in  the  construction  of  mills  at  places  distant  from 
Pittsburgh — then  the  unquestioned  point  of  low-cost  steel 
production.  Pittsburgh  was  then  close  to  the  principal  iron 
ore  supply  of  the  country — the  Pennsylvania  ore  fields — 
and  was  close  to  the  best  and  most  available  coal  fields. 
Excessive  transportation  costs  elsewhere  prevented  serious 
competition  with  Pittsburgh  as  a  steel  producer,  and  if 
mills  were  to  be  erected  in  other  parts  of  the  country,  it  is 
quite  conceivable  that  some  sort  of  "protection"  was  desirable. 

But  these  conditions  have  radically  changed,  and  because 
of  the  changes  which  have  come  about,  there  seems  no 
further  justification  for  the  subsidy,  except  for  the  benefit 
of  inefficient  and  high-cost  mills. 

Pennsylvania  no  longer  supplies  the  iron  ore  for  the  Pitts-I 
burgh  mills.     Eighty-five  per  cent  of  the  iron  supply  today! 
comes  from  the  ore  fields  of  Minnesota  and  Michigan.    This  \ 
ore  must  be  hauled  to  Pittsburgh  by  both  lake  and  rail.     It  \ 
is  hauled  by  water  to  the  lower  lake  ports  for  much  less.  \ 
Besides,  the  Chicago  district,  and  other  steel  producing  dis-    r 
tricts,  have  abundant  coal  and  limestone  nearby,  have  ample    I 
water  supply  which   is  essential  *for  steel   production,   and    ^ 
have  excellent  facilities  for  distribution. 

No  Longer  ''Infant  Industry"* 

The  testimony  of  Judge  Gary,  Col.  Bope  and  other 
admitted '  authorities,  including  the  experts  who  submitted 
production  cost  figures  to  the  Federal  Trade  Commission 
in  another  case,  shows  that  the  steel  "infant"  has  passed 
the  suckling  stage,  and  there  is  no  longer  the  necessity  of 
"protection"  or  a  subsidy  for  the  "infant  steel  industry"  in 
points  other  than  Pittsburgh. 

Therefore,  this  subsidy  seems  no  longer  necessary  to 
foster  mill  construction,  but  actually  appears  to  hinder  it, 
because  additional  mill  construction  at  the  present  time 
would  result,  as  is  admitted,  in  increasing  the  country's  steel 
supply  beyond  the  point  of  normal  demand  and  would  tend 
to  cause  steel  mill  investments  in  the  Pittsburgh  district  to 
deteriorate  in  value. 

There  would  nevertheless  be  new  steel  mills  constructed 
if  "Pittsburgh  Plus"  were  abolished,  but  these  would  be 
built  at  points  of  low-cost  production,  in  order  to  serve 
such  points  most  economically,  and  save  the  transportation! 
charges  which  the  Pittsburgh  mills  would  be  obliged  to  pay.' 
As  the  nation's  industry  grows,  under  normal  conditions, 
this  expansion  of  steel  mill  construction  would  tend  to  keep] 
pace  with  it,  but  the  expansion  would  be  at  places  bestf 
suited  by  natural  advantages  for  low-cost  steel  production, 
instead  of  at  Pittsburgh. 

27 


I 


Pittsburgh's  Day  Past 

In  support  of  this  contention,  the  testimony  of  Col.  Bope 
is  again  cited  as  follows: 

**If  I  were  an  investor  I  do  aot  believe  that  I  would  want 
to  put  a  dollar  in  a  steel  plant  east  of  the  Allegheny  Moun- 
tains. I  think  it  would  be  a  bad  investment  to  do  so.  I 
doubt  very  much  whether  I  would  want  to  put  any  money 
in  a  plant  in  Pittsburgh  or  Youngstown  today.  But  when 
it  comes  to  the  lower  lakes,  I  should  think  it  would  be  a 
good  investment  today  to  put  money  in  any  steel  plant  there, 
because  there  are  advantages  that  that  section  has  over  other 
sections  of  the  country.  There  you  have  a  water  supply 
and  you  are  nearer  to  your  ore  supply,  if  you  are  using 
Mesabi  ore  (Minnesota  ore).  You  can  make  pig  iron  along 
that  shore  for  $1.50  a  ton  cheaper  than  at  interior  points, 
perhaps. 

**Now  as  competition  is  becoming  keen — and  I  have  heard 
it  claimed  that  25  per  cent  more  steel  is  made  in  this  coun- 
tiy  than  the  country  can  consume;  I  do  not  think  that  is 
strictly  true,  but  assuming  it  is  true — ^then  you  must  figure 
that  under  the  law  of  supply  and  demand  competition  must 
become  keener,  and  therefore  you  must  watch  every  advan- 
tage  for  location,  cheaper  manufacture,  and  you  find  that 
it  costs  less  to  manufacture  along  the  lower  lakes  than  at 
any  other  place  in  the  country  outside  of  Alabama;  and  that 
is  because  the  raw  materials  are  nearer  to  you  there,  the 
markets  are  gathering  up  better  than  ever  before,  all  those 
are  elements  which  any  ^ncern  must  take  into  consideration 
and  study;  there  are  changing  conditions  that  are  going  to 
regulate  things  themselves  to  an  extent." 


Judge  Gary,  in  his  memorable  Duluth  speech,  also  stated 
the  reason^  for  mill  construction  outside  of  Pittsburgh, 
whether  "Pittsburgh  Plus"  is  in  vogue  or  not,  when  he 
said: 

"Why  did  the  €teel  corporation  build  a  plant  on  a  sandy 
desert  along  the  southern  shores  of  Lake  Michigan  ?  Because 
of  a  love  for  Indiana?  Oh,  no;  none  of  us  have  any  par- 
ticular interest  in  that  state.  It  was  purely  a  business  propo- 
sition. We  would  much  rather  have  spent  the  money 
expended  in  Gary  right  here  in  Duluth.  Our  friends  are 
here.  But  the  proposition  would  have  been  a  failure  from  a 
business  point  of  view.  There  fuel  was  easily  obtainable, 
as  were  other  things  which  are  necessary  to  the  making 
of  steel.  There  was  a  market.  For  the  manufacture  of 
pig  iron,  Duluth  is  well  situated,  perhaps  nearly  as  well 
as  almost  any  other  city.  But  Birmingham  can  manufac- 
ture pig  iron  $3.05  more  cheaply  per  ton  than  can  Duluth. 
As  to  steel  products,  Duluth  is  behind  Gary  by  38  per  cent, 
Pittsburgh  by  13  per  cent." 

Building  Activity  in  Chicago 

Further  support  of  the  contention  that  new  steel  mill 
construction  is  following  the  lines  indicated  in  Col.  Bope's 
testimony,  is  afforded  by  recent  and  projected  building 
activities  in  the  Chicago  district  and  elsewhere  in  the  west. 

The  United  States  Steel  Corporation's  subsidiary,  the 
National  Tube  Company,  is  constructing  a  great  tube  mill 
at  Gary,  Indiana,  at  an  announced  cost  of  $35,000,000; 
the  Youngstown  Sheet  and  Tube  Company,  following  its 
absorption  of  the  Steel  and  Tube  Company  of  America,  is 
now  enlarging  its  Indiana  Harbor,  Indiana,  mill  at  a  cost 
of  $4,500,000,  and  has  announced  that  its  future  construc- 
tion expenditures  would  be  confined  practically  to  the  west ; 
the   Inland   Steel   Company,   at   a   cost   of   $7,500,000,    is 

2o  • 


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increasing  the  producing  and  finishing  capacity  of  its  plant 
at  Indiana  Harbor,  also  in  the  Chicago  district. 

These  construction  activities  in  the  Chicago  district, 
together  with  the  projected  $40,000,000  Jones  and  Laughlin 
mill  and  other  projected  plants,  mean  an  estimated  expend- 
iture in  that  district  alonfe' of  Veil  over  a  hundred  millions 
of  dollars  for  new  mill  toristruction.  This,'  despite  the  fact 
that  Judge  Gary  about  three  years  ago  iannounced  that  no 
new  mills  would  be  built  in  thi^  west  if  ''Pittsburgh  Plus" 
were  abolished. 

*  %  fit 

Admittedly  this  new  construction  in  the  Chicago  district 
is  not  because  of  ''Pittsburgh  Plus."  As  noted,,  the  Jones 
and  Laughlin  Corporation  will  not  build  there  unless  "Pitts- 
burgh Plus"  is  abolishedl  It  is' therefore  plain  that  the  steel 
mills  are  seeing  the  handwriting  on  the  wall,  and  are  forti- 
fying themselves  a^iinst' the  day,  believed  to  be  not  far 
distant,  when  "Pittsbtii-gh  Plus"  will  no  longer  be  operative. 

Were  it  certain  that  this  practice  would  continue  indefi* 
nitely  there  would  be  no  incentive  to'  additional  constructioij 
in  the  west,   as  the  natidri  dots  not  at   present  require   i 
greater  steel  supply.     The  mills  could,  therefore,   actuallA 
save  money  by  supplyihg  th^ir  western  customers  from  theirl 
eastern  mills,  since  new  construction  mean^  depreciation  in  i 
the  older  mills,  a  great  expense  for  the  use  of  capital,  and  I 
other  similar  charges  to  the  mills  which  would  offset  the  [ 
gain  in  economy  of  productiodl^        ■    *   ^  y 

^  / 

St.  Louis  Would  Benefit     ^ 

In  addition  to  the  building  up  of  the  Chicago  district 
which  the  abolition  of  "Pittsburgh  PlUs"  will  bring  about, 
there  are  other  sections  of  the  we^t  well  adapted  to  econom- 
ical steel  production  which  would  benefit,  notably  St.  Louis. 

Newly  developed  ore  deposits  iji  the  Ozark  mountains 
are  available  for  steel  production  in  the  St.  Louis  area. 
There  is  an  abundance  of  coal,  limestone  and  water,  and 
it  is  the  hub  of  an  excellent  and  constantly  growing  trade 
territory. 

But  there  is  no  present  incentive  for  additional  mill  con- 
struction there,  with  "Pittsburgh  Plus"  operative,  and  the 
great  natural  advantages  which  St.  Louis  possesses  will 
never  be  utilized  thoroughly  until  this  practice  is  abolished. 

What  is  true  of  St.  Louis  is  equally  -true  of  every  place 
in  the  country  which  has  natural  advantages  for  the  eco- 
nomical production  and  distribution  of  steel.  Therefore, 
far  from  "Pittsburgh  Plus"  fostering  mill  construction 
throughout  the  country,  it  is  apparently  retarding  it,  in  the 
interest  of  small  and  inefficient  mills  located  at  unfavorable 
production  points,  or  mills  located  in  Pittsburgh  whose 
business, might  be  curtailed  by  the  abolition  of  "Pittsburgh 
Plus." 

These  inefficient  mills  have  no  place  in  the  modern  scheme 
of  industry  and  deserve  no  especial  consideration.  They 
must  either  become  efficient  and  up-to-date,  or  must  follow 
the  usual  law  of  industry  and  give  way  to  more  enterprising 
and  energetic  competitors.  They  are  not  essential,  because 
their  place  will  be  taken  by. other  and  more  capable  pro- 

29 


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ducers,  situated  at  places  better  adapted  to  economical  and 
efficient  production  and  distribution. 

Cost  of  Production  amd  Long  Run  Theory 

Although  Judge  Gary,  in  his  famous  Duluth  speech, 
insisted  upon  the  necessity  of  the  "protective''  feature  of 
*Tittsburgh  Plus"  to  justify  steel  mill  construction  and 
operation  at  Duluth,  his  attorneys  in  the  pending  case  have 
discarded  production  cost  as  a  factor  in  steel  price-making. 
They  contend  that  the  only  factor  which  can  be  taken  into 
account  is  that  of  "supply  and  demand,"  or  "surplus 
production." 

The  theory  of  the  mills  is  asserted  to  be  fallacious  and 
not  expressive  of  the  real  economic  law  which  is  involved 
in  steel  price-making,  or  the  price-making  of  any  other  com- 
modity. The  fundamental  element  in  price-making,  able 
economists  say,  is  production  cost,  since  this,  in  the  long 
/un,  regulates  supply  in  relation  to  demand. 

The  real  economic  law,  they  insist,  must  rest  upon  economy 
of  production  because,  in  the  long  run,  it  is  the  rule  of 
industry  that,  untrammeled  by  artificial  manipulation  or 
control,  the  low-cost  producer  tends  to  drive  his  higher-cost 
competitor  out  of  his  market* 

Thus,  they  show,  when  demand  exceeds  supply,  both  low- 
cost  and  high-cost  producers  may  flourish,  because  prices 
will  be  high,  their  level  being  set  by  the  highest  cost  pro- 
ducer whose  product  is  essential  to  meet  the  demand  of  the 
moment.  However,  during  such  periods  of  active  demand, 
production  is  always  speeded  up  to  meet  it,  the  result  being 
that  SL  point  is  reached  at  which  supply  meets  and  then 
exceeds  demand.  At  that  point  the  highest  cost  producer 
can  no  longer  compete  to  advantage.  As  supply  contmucs 
to  exceed  demand  other  relatively  high-cost  producers  are 
no  longer  able  to  compete. 

A  point  is  eventually  reached  where  the  selling  price  de- 
pends not  upon  the  dost  of  the  highest  cost  producer,  but  upon 
that  of  the  lowest  cost  producer.  Between  the  two  ex- 
tremes of  abnormal  demand  and  abnormal  supply,  there  is  a 
point  which  permits  all  producers  whose  costs  reasonably 
approximate  those  of  the  most  economical  producer  to  live 
and  profit,  and  that  constitutes  the  normal  trade  condition. 
Normal  prices,  therefore,  are  really  dependent  upon  tlic  costs 
of  the  lowest-cost,  rather  than  of  the  highest  cost  producers.* 

This  law,  according  to  most  economists,  obtains  in  all 
industries,  and  the  steel  industry  is  not  an  exception  to  the 
general  rule.  Therefore,  they  say,  "Pittsburgh  Plus"  mani- 
festly does  not  exist  because  of  economic  law,  but  in  defiance 
of  it,  and  only  because  of  close  control  of  the  steel  industry. 

Based  upon  the  real  economic  law  governing  steel  price- 
making,  therefore,  the  actual  determining  factor,  in  an  un- 
trammeled and  free  market,  is  not  the  relative  supply  of  the 
moment,  but  the  possibility  of  supply  over  a  long  period  by 
the  lowest-cost  point  of  production. 

This  being  the  case,  the  real  inquiry  in  this  controversy, 
so  far  as  economic  law  is  concerned,  should  be  directed  to 
the  ascertaining  of  the  lowest-cost  producing  point. 

JO 


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Points  of  Low-Cost  Production 

This  point  of  lowest-cost  production,  as  well  as  the  rela- 
tive production  costs  of  various  steel  producing  localities,  is 
in  controversy.  Judge  Gary's  Duluth  speech  was  taken  as 
settling  the  question,  so  far  as  relative  costs  at  Pittsburgh, 
Chicago,  Birmingham  and  Duluth  are  concerned,  but  in  his 
testimony  in  the  pending  suit,  he  intimated  that  Pittsburgh 
is  really  as  low-cost  a  producer  as  any  of  the  other  districts. 

However,  he  also  admitted  that  the  figures  he  had  given 
at  Duluth  in  1918  were  accurate  and  had  been  carefully 
prepared  for  him,  his  testimony  on  this  being  as  follows: 

Q.  Do  you  recall  that  you  gave  these  figures,  that  at 
Duluth  the  cost  of  producing  steel  was  38  per  cent  higher 
than  at  Gary,  and  13  per  cent  higher  than  at  Pittsburgh, 
and,  I  believe,  12  per  cent  higher  than  at  Birmingham? 

A.  I  do  not  remember  the  figures.  If  I  gave  them  they 
were  probably  accurate,  because  in  a  public  address  like 
that,  where  that  question  was  involved,  I  would  not  give 
figures  that  I  had  not  verified. 

Manufacturers  of  commodities  made  from  steel  who  are 
located  in  Duluth  dispute  the  accuracy  of  Judge  Gary's 
figures,  so  far  as  they  apply  to  present  conditions.  They 
assert  that  present  costs  are  comparable  to  Pittsburgh's.  Du- 
luth is  closer  to  iron  ore  than  any  other  northern  steel  pro- 
ducing point,  and  therefore  obtains  its  ore  cheaper.  In  1918 
the  Duluth  mill  had  only  been  in  operation  about  two  years. 
Since  then  the  variety  of  its  production  has  increased  and 
manufacturing  conditions  have  improved. 

The  Duluth  people  also  assert  that  their  other  costs  are 
not  sufficiently  greater  than  those  of  Pittsburgh  to  warrant 
the  claim  of  the  steel  mills  that  Duluth  costs  are  notably 
higher.  During  a  considerable  portion  of  the  year,  when 
lake  navigation  is  open,  they 'can  obtam  their  coal,  coke  and 
other  steel-making  essentials  at  a  reasonable  cost,  and  their 
labor  situation  is  favorable.  Judge  Gary  admitted  in  his 
speech  that  Duluth  is  favorably  situated  for  the  manufacture 
of  pig  iron,  and  the  Duluth  people  say  that  this  also  applies 
to  steel. 

A  Curious  Condition 

They  point  out  that  the  Duluth  mill  ships  in  excess  of 
100,000  tons  of  semi-finished  steel  to  the  Milwaukee  mill  of 
the  Illinois  Steel  Company,  a  United  States  Steel  Corpora- 
tion subsidiary,  for  re-rolling. 

Steel  bars  rolled  at  Milwaukee  are  sold  there  at  the  Pitts- 
burgh price,  plus  $7.50  per  ton,  the  freight  rate  from 
Pittsburgh  to  Milwaukee.  But  it  costs  $6.10  per  ton  to 
ship  the  semi-finished  steel  from  Duluth  to  Milwaukee.  The 
difference  between  the  *'plus"  charged  and  the  actual  freight 
paid  is  $1.40  per  ton. 

The  Milwaukee  mill  w^as  built  more  than  thirty  years  ago. 
Almost  certainly  it  cannot  operate  at  as  low  a  cost  as  the 
nearly  new  and  modern  Duluth  mill.  It  would  seem,  there- 
fore, if  the  Milwaukee  mill  can  profitably  re-roll  semi- 
finished steel  produced  by  the  Duluth  mill,  and  sell  it  with  a 
**protection''  of  only  $1.40  per  ton  of  **plus,"  that  steel  bars 
rolled  at  Duluth  from  the  same  character  of  semi-finished 
steel  as  is  shipped  to  Milwaukee  could  be  sold  profitably  at 

31 


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l^riM 


Duluth  It  an'advance^of '$1.40  -per  ton  over  the  Pittsburgh 
.price,  instead  of  $12  over  Pittsburgh,  the  price  now  charged. 
;  Figures  submitted  by  the  United  States  Steel  Corporatiofi 
to  the  Federal  Trade  Commission  and  in  evidence  in  the 
pending  case,  apparently  verify  the  figures  Judge  Gary  cited 
in  his  Duluth  speech.  They  were  based  upon  1920  mill,  costs 
of  the  Carnegie  Steel  Company,  of  Pittsburgh;  the  Illinois 
Steel  Company,  of  Gary  and  South  Chicago;  the. Minnesota 
Steel  Company,  of  Duluth,  and  the  American  Sheet  &  Tin 
Plate  Company,  ^afl  subsidiaries  of  the  United  States  Steel 
Corporation. 

These  figures  show  that  Chicago's  cost  of  production  of 
steel  bars  was  then  $4.10  per  ton  lower  than  Pittsburgh,  or 
about  10  per  cent,  and  'that  Birmirtgham's  cost  was  also 
sli^tly  lower  than  Pittsbufgh,  while  Duluth *s  was'  about 
10  per  cent  higher. 

Chicago's  production  cost  on  steel  shapes  was  $8.40  per 
ton,  or  about  22  per  cent  lower  than  Pittsburgh,'  while 
Birmingham's  cost  was  about  the  same  as  Pittsburgh's. 
I  Chicago's  production  cost  on  steel  plates  was  also  slightly 
lower  than  Pittsburgh's,  the  exact  amount  being  60  cents 
per  ton,  or  about  1  j4  per  cent,  while  here  Birmingham's  cost 
is  considerably  higher,  being  $7.50  per  ton,  or  about  18  per 
cent  more  tjhan  Pittsburgh. 

On  black  sheets  Chicago  was  also  a  lower  cost  producer 
jthan  Pittsburgh  by  $7.20  per  ton,  or  about  10  per  cent. 

This  complete  table  qf  costs  for  the  four  producing  plants, 
^s  subn?ittefl  in  the  pending  case,  is  as  follows: 

Production  Costs  and  Pro/its  Compared 

.1  •■  ' '  ■       ' 

These  figures  arc  leased  on  1920  mill  costs  of  the  Carnegie 
Steel  Company,  the  Illinois  Steel  Company,  the  Minnesota 
Steel  Company  and  the  American  Sheet  &  Tin  Plate  Com- 
pany, submitted  b]j  the  U.  S.  Steel  Corporation  to  the  Fed- 
etal  Trade*  Commission  September  15,  1921: 


Price  Net  Freight  Net 

Delivered 

Cost  of 

Profit 

ton  F.O.B. 

ton  from 

price  per 

Production 

Net  ton 

;•    ;    .*> 

Pittsburgh  Pittsburgh 

Net  ton 

Net  ton 

at  Min 

BARS 

Pittsburgh  .. 

..  $47.00 

$     .00 

$47.00 

$44.90 

$  2.10 

Chicago  .... 

. .    i47.00 

7.60 

54.^  ' 

40.80 

13.80 

3irminghani 

. .     47.00 

5.00* 

52.00 

44.00 

8.00 

l>uliith     . . .  i 

. .     47.00 

13.20 

60.20 

50.40 

9.80 

SHAPES 

* 

z 

- 

Pittsburgh  . . 

. .     49.00 

.00 

49.00 

46.^ 

2.40 

Chicago  .... 

. .     49.00 

7.60 

56.00 

38.20 

18.40 

Birmingham 

. .     49.00 

5.00* 

ji 

54:00 

46.50c 

7.50 

PLATES 

# 

Pittsburgh    ; 

. .     53.00 

.00 

53.00 

43.40 

1 

9.60 

Chicago  .  i . . 

..     5S.00   ' 

7.60 

60.60 

42.80 

17.80 

Birmingham 

. .     49.00 

5.00* 

54.00 

46.50 

7.50 

BLACK-  SHEETS 

Ik 

Pittsburgh  .. 

. .     87.00 

.00 

87.00 

76.70 

10.30 

Chicago  . . . , 

. .     87.00 

7.60 

94.60 

69.50 

25.10 

*The  delivered  price  at  Birmingham  is  obtained  by  add- 
ing an  arbitrary  differential  of  $5.00  per  ton  to  the  f.o.b. 
Pittsburgh  price.  Were  the  actual  freight  of  $15.30  per  ton 
added  to  the  f.o.b.  Pittsburgh  price  as  is  done  at  Chicago, 
Birmingham  profits  as  shown  would  be  increased  $8.30 
per  ton.         '  -  ,  _-  ,  ► 

As  will  be  noted  from  the  above  table,  the  mills  of  tlie 
United  States  Steel  Corporation  in  the  Chicago  district  make 

32 


.1 


■If 


a  vastly  greater  profit  than  do  those  in  the  Pittsburgh  district- 
In  fact,  the  Pittsburgh  mills  make  a  smaller  profit  on  their 
steel  than  those  of  any  other  district. 

With  'Tittsburgh  Plus"  in  full  effect— at  the  time  the 
above  table  was  prepared  it  amounted  to  about  10  per  cent 
more  than  at  present,  for  which  allowance  must  be  made,  as 
there  was  a  10  per  cent  freight  rate  reduction  in  1922 — the 
corporation's  mills  outside  of  the  Pittsburgh  district  made  a 
profit  out  of  all  proportion  to  that  of  the  Pittsburgh  mills. 

Why  should  consumers  all  over  the  country  pay  this  ex- 
cessive profit? 

This  method  of  subsidizing  new  steel  mills  and  steel  mills 
in  locations  where  costs  are  higher,  is  apparently  not  jus- 
tified, since  it  gouges  consumers  to  a  degree  far  in  excess  of 
the  protective  requirements  of  such  mills,  assuming  that  such 
protection  is  requisite. 

The  Duluth  people  also  assert  that  the  table  here  cited 
shows  that  even  the  Duluth  district  by  no  means  requires 
the  excessive   **protection"   afforded  by   "Pittsburgh   Plus." 

With  "Pittsburgh  Plus"  abolished,  Duluth's  supporters 
say,  prices  might  be  higher  at  Duluth  than  at  Chicago  or 
Pittsburgh,  if  the  claim  of  higher  cost  of  production  is 
warranted,  but  they  would  not  be  as  excessive  as  shown  in 
the  atove  table. 

Other  authorities  are  agreed  that  Pittsburgh  is  nq  longer 
the  point  of  lowest-cost  production,  or  even  a  point  of  rela- 
tively low-cost  production.    Col.  Bope  showed  that  the  lower 
lakes  region  and  Alabama  both  have  superior  facilities  for 
steel  production.     The  advantages  of  St.  Louis  have  been 
cited.     It  is  admitted  that  Buffalo,  where  the  great  Lacka-i 
wanna  mills  of  the  Bethlehem-Lackawanna  consolidation,  are! 
located,  is  a  low-cost  producer,  while  it  is  claimed  that  pro-l 
duction  costs  both  at  Bethlehem  and   Sparrow's  Point  are! 
relatively  low.    In  the  two  latter  cases,  these  mills  could  sur-\ 
vive,   even   though   their   production   costs   were   somewhat 
higher  than  western  or   Pittsburgh  mills,   as  they  are   far 
nearer  the  great  eastern  and  Atlantic  seaboard  markets,  and 
would  enjoy  the  natural  protection  afforded  them  by  their 
contiguity  to  these  markets  and  the  high  freight  cost  to  com- 
petitors to  enter  them. 

In  no  case,  with  "Pittsburgh  Plus"  in  effect,  does  any 
locality  reap  the  benefit  of  nearby  low-cost  mills,  and  this 
applies  to  the  east  equally  with  the  west  and  south. 

Stabilization 

One  of  the  principal  arguments  in  addition  to  that  of 
economic  law  which  the  mills  invoke  in  support  of  the 
"Pittsburgh  Plus"  practice,  is  that  it  "stabilizes"  the  steel 
industry. 

Much  stress  is  laid  upon  this.  Were  it  not  for  "Pitts- 
burgh Plus,"  the  mills  assert,  the  steel  market  would  be  in 
a  state  of  constant  upheaval;  neither  producers  nor  con- 
sumers would  know  how  to  quote,  and  that  the  prevailing 
device  enables  them  to  figure  exactly  what  their  costs  will 
be.  In  short,  that  "Pittsburgh  Plus"  is  really  merely  a 
"basis  upon  which  to  figure." 

n 


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,   \ 


This   point   IS  made   strongly   by  Judge   Gary   in   this 

testimony : 

"I  regard  'Pittsburgh  Plus'  primarily  as  being  only  a 
quotation  base,  a  base  to  Egure  on  for  both  the  consumer 
and  the  producer." 

He  further  testified : 

Q.  Do  you  mean  that  there  would  be  less  fluctuating 
prices  on  the  Pittsburgh  base  than  there  would  be  on  the 
mill  base? 

A.  I  think  they  are  less  fluctuating.  They  are  unstable 
enough  as  it  is.  But  if  there  is  a  base,  if  there  is  a  starting 
point,  and  the  general  trade  knows  that  there  is  something 
to  go  by,  it  is  easier  to  secure  contracts  in  the  first  place^ 
in  behalf  of  the  consumer  or  in  behalf  of  the  seller.  Every- 
one interested  in  the  commodity  in  any  state  of  its  manu-- 
facture  is  better  accommodated.  Stability  and  continuity 
of  business  is  of  the  highest  importance. 

And  further  he  stated : 

*'If  he  (the  fabricator)   has  an  existing  Pittsburgh  base^ 
he  has  a  starting  point.    Now  he  knows  what  that  means^ 
if  there  is  no  waiving,  no  cutting  in  the  application  of  that, 
that  the  market  in   Chicago  is   as  much  higher  than  the 
Pittsburgh  price  as  the  amount  of  the  freight  that  has  to  be 
paid  from  day  to  day.    Of  course,  he  has  to  keep  advised 
in  regard  to  that.    Always  when  prices  are  changing,  going 
up  and  down,  it  requires  a  constant  diligence  to  find  out 
what  the  situation  is." 
This  comprises  the  essence  of  the  mills*  "stabih'zation'^ 
argument.    They  admit,  however,  that  in  times  of  slack  de- 
mand "Pittsburgh  Plus"  is  not  strictly  observed. 

Needed  Nowhere  Else 

It  seems  rather  a  curious  commentary  upon  this  argu- 
ment that  steel,  if  not  the  only  industry  requiring  such 
"stabilization,"  is  at  least  one  of  the  very  few  in  which -a 
device  of  this  character  is  employed. 

Other  industries  manage  to  flourish  very  comfortably  with- 
out the  aid  of  such  a  device.  This  would  seem  presumptive 
evidence  that  "Pittsburgh  Plus"  is  not  required  to  avoid 
chaos  in  the  steel  trade. 

However,  there  is  other  evidence.  The  opponents  of 
"Fittsburgh  Plus"  assert  that  the  mills  have  utterly  failed 
to  make  out  a  case  on  the  score  of  "stabilization"  by  the  mere 
process  of  adding  freight  rates.  Judge  Gary's  testimony  is 
pointed' to  as  showing  that  this  so-called  "stabilization"  is 
merely  adding  a  fixed  charge — the  freight  rate  from  Pitts- 
burgh— to  a  fluctuating  price. 

Why  should  this  fixed  charge  be  based  upon  Pittsburgh,  if 
Pittsburgh  is  not  the  lowest  cost  producer?  Why  should 
there  be  any  fixed  charge  whatever?  Why  should  not  each 
market  determine  its  own  charges,  as  is  done  in  other  indus- 
tries  without  chaos? 

All  these  arc  pertinent  inquiries  which  the  upholders  of 
"Pittsburgh  Plus"  fail  to  satisfy  in  their  replies.  Even  so 
astute  a  person  as  Judge  Gary  evaded  this  in  his  testimony^ 
which  follow^s: 

Q.  Then,  instead  of  relying  on  the  Pittsburgh  base  as 
a  starting  point,  is  it  not  feasible  for  him  (the  fabricator) 
to  rely  on  the  Chicago  base  as  a  starting  point  and  keep 
track  of  it  in  that  way? 

A.  It  is  the  difference  between  having  something  to  go 
by  and  having  nothing  to  go  by. 

54 


I 


Q.    Why  would  he  have  nothing  to  go  by  in  the  ca.e  of 

Chicago  quotations? 

A.  I  mean  as  a  starting  point  he  has  nothing  to  go  by 
if  the  Pittsburgh  base  is  eliminated. 

Q.  Could  not  the  Chicago  manufacturer  have  his  start, 
ing  point  Chicago,  and  the  Pittsburgh  manufacturer  have 
his  starting  point  Pittsburgh,  and  go  by  those  prices? 

A.  Yes,  they  could.  They  could  have  prices  at  every 
location  where  the  article  is  consumed.  Why  do  they  not 
have  them?  Why  is  not  business  conducted  in  that  way? 
Why  has  it  .not  been  in  all  different  lines  of  business? 
What  is  the  reason  for  having  some  location  established  as 
a  market  price  or  place  to  figure  from,  except  for  the  con- 
venience of  business  and  the  accommodation  of  everyone 
interested  ? 

Gary  Makes  Admission 

It  will  be  observed  that  Judge  Gary  admits  Chicago  or 
some  other  point  or  several  other  points  could  be  used  as 
bases  from  w^hich  to  figure  prices.  He  merely  asserts  that 
the  purchasers  of  steel  would  have  "nothing  to  go  by,"  if 
^'Pittsburgh  Plus"  were  eliminated,  without  offering  an  ade- 
quate reason  for  the  establishing  of  Pittsburgh  as  a  basing 
point  and  without  showing  how  steel  differs  from  numerous 
other  commodities  in  this  respect. 

Much  more  illuminating  is  the  testimony  of  Col.  Bope. 
In  tracing  the  history  of  price-fixing  in  the  steel  trade,  he 
showed  that  numerous  devices  had  been  utilized  successively 
and  discarded,  owing  to  changing  conditions.  With  Pitts- 
burgh the  actual  source  of  supply  for  nearly  all  the  steel 
made  in  the  country,  the  Pittsburgh  base  was  not  only  fair 
enough  but  probably  the  most  convenient  method  of  figur- 
ing; but  this  condition  has  changed  radically.  Col.  Bope 
indicated  this  when  he  testified: 

"In  all  business  a  great  deal  is  done  on  precedent,  and 
after  many  years  of  the  establishment  of  this  system  ('Pitts- 
burgh Plus*)  in  organizations  and  associations  they  just 
continued  it  and  it  was  found  to  be  a  stabilizing  influence 
and  one  that  was  satisfactory  to  both  buyer  and  seller  and 
it  was  just  continued." 

He  further  testified: 

Q.  In  order  to  be  a  good  stabilizer,  what  factors  have  to 
occur? 

A.  There  has  to  be  a  general  equality  and  a  basic  system 
where  you  have  a  price  that  remains  stable.  When  it  is 
changed,  it  is  changed  to  conform  to  new  conditions  which 
may  have  arisen  and  which  the  trade  demands. 

Q.  In  order  that  this  basing  system  be  successful  as  a 
stabilizer,  must  the  prices  between  the  different  manufac- 
turers be  uniform? 

A.  It  takes  uniform  prices  to  be  stable.  Fluctuating 
prices  are  not  stable. 

Q.  So  that  if  the  prices  of  the  manufacturers  (producers) 
were  not  stable,  there  would  not  be  stabilization  as  you  use 
that  term? 

A.    No,  I  should  say  not. 

Real  Basis  of  Stability 

This  shows  that  the  real  basis  of  stability  is  the  funda- 
mental price,  not  the  addition  of  any  fixed  charge,  and  it 
would  seem  that  such  * 'stabilization"  could  be  easily  obtained 
without  "Pittsburgh  Plus,"  and  in  fact,  that  the  "Pittsburgh 
Plus"  device  can  hardly  be  regarded  as  a  stabilizing  factor 
at,  all. 

« 

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As  to  whether  this  so-called  "stabilizing  device"  really 
"stabilizes,"  the  facts  seem  to  be  against  the  contention. 
The  mills  admit  that  "Pittsburgh  Plus"  goes  by  the  board 
in  times  of  slack  business,  when  demand  is  light.  That 
would  seem  to  the  uninitiated  to  be  the  time  when  "stabilizi- 
tion"  is  most  desirable.  Yet,  that  is  the  very  time  when  no 
"stabilization"  is  effected.  At  times  when  the  steel  market 
is  firm,  and  naturally  stable,  "Pittsburgh  Plus"  merely  adds 
a  fixed  sum  to  the  prevailing  high  prices  and  brings  about 
a  generally  higher  level  of  commodity  prices,  which  then  is 
something  always  sought  to  be  avoided. 

It  is  also  pertinent  to  inquire  how  an  arbitrary  differential 
of  $5  per  ton  at  Birmingham  can  effect  the  "stabilization" 
which  the  steel  mills  so  highly  vaunt.  Prices  may  be  figured 
just  as  easily  without  an  arbitrary  added  charge  of  $5  per 
ton  as  with  it.  There  is  no  "chaos"  or  "demoralization" 
normally  in  the  Birmingham  market,  despite  the  fact  that 
the  full  "Pittsburgh  Plus"  charge  is  not  paid. 

The  situation  at  Birmingham,  therefore,  self-created  by 
the  mills,  would  seem  incontestably  to  indicate  that  no 
"stabilization"  such  as  "Pittsburgh  Plus"  is  said  to  afford 
is  required  in  any  steel  market. 

Conceals  a  Profit 

In  the  face  of  the  experience  of  other  industries;  in  view 
►f  the  fact  that  "Pittsburgh  Plus"  really  conceals  an  added 
irofit  to  the  mills  not  justified  on  the  score  of  production 
:osts,  and  in  the  light  of  its  evil  effect  upon  the  ultimate  con- 
jumer,  the  "stabilization"  argument  seems  hardly  tenable. 

It  seems  a  lame  argument  to  assert  that  Pittsburgh  must 
Ibe  the  point  of  price-basing  for  making  stable  quotations, 
in  the  face  of  the  fact  that  it  is  not  so  well  situated  as  a 
point  of  distribution  or  of  economical  production  as  other 
steel  producing  centers,  and  of  the  fact  that  in  other  com- 
Imodities,  such  as  pig  iron  and  rails,  there  appears  no  neces- 
sity for  such  "stabilization." 

Under  normal  conditions,  each  market  in  any  commodity 
determines  its  own  prices.  This  does  not  result  in  trade 
demoralization  or  chaos.  On  the  contrary,  industry  usually 
does  very  well  under  such  a  system. 

Pools,  "gentlemen's  agreements,"  and  other  price-fixing 
devices  contrary  to  law  and  public  policy  but  profitable  to 
the  mills,  were  all  resorted  to  under  the  specious  plea  that 
they  were  essential  to  "stabilization."  Their  abolition  has 
resulted  in  no  demoralization  of  trade  and  it  seems  at  least 
reasonable  to  presume  that  the  abolition  of  "Pittsburgh 
Plus"  will  result  in  no  such  demoralization. 

During  1922  and  the  first  half  of  1923  when  "Pittsburgh 
Plus"  was  arbitrarily  abolished  in  the  Chicago  market  on 
plates,  shapes  and  bars,  there  was  no  demoralization  or 
chaos  in  the  steel  trade,  but  conditions  were  stable  because 
demand  was  great. 

During  1908  and  1919,  with  the  market  generally  demor- 
alized but  with  "Pittsburgh  Plus"  in  full  force  and  effect, 
no  marked  stabilization  was  effected.  What  argument  can 
there  be  for  "stabilization,"  if  it  fails  to  "stabilize"  when 

36 


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I 


"stabilization"  is  essential  and  only  "stabilizes"  when  market 
conditions  themselves  insure  stabilization? 

Profits 

The  real  "stabilization"  which  "Pittsburgh  Plus"  effects 
is  not  of  trade  conditions.  These  would  undoubtedly  be 
"stabilized"  without  it.  Then,  what  kind  of  "stabilization" 
is  effected? 

That  question  is  easy  to  answer.    It  is  the  "stabilization"/ 
of  steel  mill  profits  upon  a  high  level.     There  is  no  doubt/ 
that  the  mills  derive  ah   additional,   and   unearned,   profit! 
from  "Pittsburgh  Plus."     It  may  be  that  this  profit  is,  inj 
some  cases,  justified,   but  in  that  event  why  should  it  be 
disguised  ? 

Why  should  it  not  be  frankly  added  to  the  price  of  steel, 
as  justified  profit  is  frankly  added  to  the, price  of  other 
commodities  ? 

That  "Pittsburgh  Plus"  causes  higher  prices  for  steel  is 
unquestioned.  It  is  admitted  by  Judge  Gary.  He  testified 
as  follows: 

Q.  Do  you  think  it  is  good  for  the  communities  when, 
under  this  basing  system,  on  the  steel  that  the  farmers  buy 
from  one  implement  concern  alone  in  the  Chicago  territory, 
those  farmers  are  obliged  to  pay  over  $1,000,000  per  year 
"Pittsburgh  Plus"? 

A.     **Pittsburgh   Plus,"    when    it   is   in    force,    of   course 
makes  steel  cost  more. 
From  the  foregoing  the  query  naturally  suggests  itself, 

"Is  the  price  increase  warranted?" 

If  it  is,  then  why  not  charge  it  in  the  price,  candidly? 

If  it  is  not,  then  what  is  "Pittsburgh  Plus"  but  a  device 
for  obtaining  more  money  for  the  product  of  the  mills  than 
they  are  entitled  to? 

And  if  "Pittsburgh  Plus,"  when  it  is  in  force,  makes  steel 
DSt  more,  how  can  it  be  regarded  solely  as  a  "stabilizing" 
factor,  other  than  as  a  factor  which  only  "stabilizes"  greater 
mill  profits? 

Or  does  "stabilization"  merely  consist  of  -higher  com- 
modity  prices  and  the  affording  of  greater  profits  to  producers 
than  they  are  entitled  to? 

Surely  the  steel  mills  can  hardly  claim  that. 

Huge  Sum  Annually 

Yet  conservative   estimates   of   the   annual   profit   which 

accrues  to  the  steel  mills  because  of  "Pittsburgh   Plus" — 

the  United  States  Steel  Corporation  and  the  "independents" 

alike— range  from  $75,000,000  to  $100,000,000  each  year. 

.That  is  a  considerable  "stabilization"  to  the  steel  mills. 

But  it  must  be  remembered  that  the  public  pays  for  this 
"stabilization,"  and  by  the  time  the  public  has  paid  this 
charge,  with  fabricators'  and  middlemen's  profits  added  to 
it,  the  amount  that  is  mulcted  from  the  public's  pockets  is 
at  least  double  that  which  goes  into  the  pockets  of  the  mills. 

That  means  that  the  public  pays  from  $100,000,000  to 
$150,000,000  each  year  to  "stabilize"  the  steel  industry — 
so  that  the  mills  may  derive  an  extra  and  unearned  profit. 

Judge  Gary  has  recently  spoken  quite  eloquently  upon 
the  necessity  for  candor  and  publicity  in  "big  business" 
affairs.    Candor  and  public  knowledge  are  admittedly  desir- 

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able.  A  welcome  application  of  the  theories  which  Judge 
Gary  has  been  industriously  expounding  would  be  the  frank 
and  candid  addition  of  a  charge  in  the  pricing  of  steel  by 
which  the  mills  would  make  the  profit  that  "Pittsburgh 
Plus;  nets  them,  without  any  subterfuge  which  substitutes 
specious  terms  for  candor  and  procures  this  profit  by  means 
of  an  unearned  freight  charge  under  such  masquerades  as 
'^economic  law"  and  "stabilization." 

Candor  Desirable 

A  further  illustration  of  the  desirability  of  candor  is 
afforded  by  conditions  in  1920  and  1921,  when  the  steel 
trade  saw  the  keenest  competition  in  years. 

The  demand  for  steel  slackened  during  the  autumn  of 

1920,  and  by  the  early  part  of  192.1  independent  mills  in 
the  east  and  in  the  Chicago  district,  running  only  to  about 
30  to  40  per  cent  of  their  capacity,  frantically  sought  busi- 
ness. There  was  price-cutting  in  all  directions,  but  nof 
by  the  United  States  Steel  Corporation.  This  corporation 
had   shown  more   fairness  in   its  prior  dealings   than   the 

(independents.  During  "boom"  times  it  had  refrained  from 
excessive  premium  charges  for  prompt  delivery  which  most 
of  the  independents  had  made.  As  a  result  of  the  good  will 
thus  acquired,  it  had  booked  a  large  "back  log"  of  unfilled 
orders  which  kept  its  mills  fairly  busy,  while  its  competitors 
were  desperately  seeking  tonnage. 

"Pittsburgh  Plus"  remained  in  full  effect  until  about 
January,  1921,  when  the  independent  mills  began  cutting 
prices.  About  April  1  an  attempt  was  made  to  stabilize  the 
market  on  a  lower  price  level.  The  independent  mills  ad- 
vanced their  prices  and  at  the  same  time  the  U.  S.  Steel 
Corporation  announced  a  "reduction."  This  was  a  reduc- 
tion of  the  corporation's  prices,  but  the  new  price  level  an- 
nounced by  the  corporation  was  the  same  as  that  to  which 
the  independents  had  raised  their  own  quotations.  The  new 
prices  were  considerably  higher  than  those  which  the  mde- 
pendents  had  quoted  prior  to  that  time.  All  the  mills  ob- 
served the  new  price  scale,  at  least  temporarily. 

The  independents  observed  the  April  scale  for  a  time,  but 
after  a  couple  of  months  price  cutting  began  again.    In  July, 

1921,  this  process  was  repeated.  Again?  the  United  States 
Steel  Corporation  announced  a  "reduction."  Again  the  in- 
dependents brought  their  prices  up  to  the  new  level.  And 
again  the  "reduction"  really  meant  an  increased  price  of 
steel,  although  once  more  the  corporation  reaped  glory  for 
"reducing  prices." 

It  was  a'  this  time  that  "Pittsburgh  Plus"  w^  entirely 
abandoned  in  the  Chicago  market,  and  Chicago  was  made  a 
basing  point  for  plates,  shapes  and  bars,  but  no  concession 
was  made  on  wire,  sheets  or  other  steel  products. 

True,  in  these  two  instances,  the  United  States  Steel 
Corporation  had  "reduced"  its  own  prices,  but  it  had  not 
effected  reductions  in  the  prices  current  in  the  steel  market, 
and  it  knew  it.  Yet  it  claimed  and  obtained  credit  for  that 
very  thing.  That  was  hardly  candor,  of  the  character  so 
earnestly  and  engagingly  recommended  by  Judge  Gary. 

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Nor  is  it  candor  to  substitute  such  pleas  as  "economic 
law"  and  "stabilization"  for  the  actual  fact  regarding 
"Pittsburgh  Plus,"  which  is,  as  Judge  Gary  indirectly 
admitted  in  his  testimony  which  has  been  quoted,  that  "Pitts- 
burgh Plus,  when  it  is  in  force,  of  course  makes  steel  cost 
more." 

If  it  makes  steel  cost  more,  it  is  plain  enough  that  it 
brings  greater  profits  to  the  steel  mills.  Candor  would 
seem  ta  require  the  plain  statement  that  the  mills  are  entitled 
to  more  money  for  their  product,  but  for  some  curious  and 
unexplained  reason,  they  seem  loath  to  make  this  statement. 

Long  Time  Usage 

The  steel  mills  assert  that  objectors  to  the  "Pittsburgh 
Plus"  practice  should  not  be  heard  to  complain  for  two 
additional  reasons.  One  is  that  all  western  and  southern 
industry  in  steel  has  been  built  up  under  the  practice,  and 
the  other  that  industry  in  all  parts  of  the  country,  when 
it  was  established,  knew  of  the  existence  of  the  practice 
and  located  where  it  did  in  the  light  of  this  knowledge. 
That  is,  it  is  claimed  by  the  mills  that  western  manufac- 
turers, in  locating  their  plants,  knew  that  "Pittsburgh  Plus" 
was  common  practice  in  the  steel  trade,  and  yet  saw  sufficient^ 
other  advantages  to  justify  them  in  going  into  business. 

The  mills  also  claim,  in  this  connection,  that  the  "Pitts- 
burgh Plus"  practice  is  established  by  "long-time  usage," 
and  its  disestablishment  would  play  havoc  with  the  industry. 

The  mills  assert  that  there  is  a  great  and  growing  steel 
fabricating  industry  in  the  west  and  south,  and  that  this 
has  been  built  up  during  the  time  that  "Pittsburgh  Plus" 
was  in  effect.  Therefore,  they  say,  this  is  evidence  that 
this  practice  has  been  beneficial  to  the  fabricators  and  to 
the  steel  industry  generally,  as  well  as  to  the  mills — in 
brief,  that  it  shows  that  "Pittsburgh  Plus"  has  "stabilized" 
the  industry.       ^ 

Claim  Industry  Benefits 

The  United  States  Steel  Corporation  contends  that  the 

many  prospering  industries  located  elsewhere  than  in   and 

about  Pittsburgh  prove  that  "Pittsburgh  Plus"  has  not  acted 

as  a  deterrent  to   industry  generally.     Judge  Gary  made 

this  point  specifically  in  his  testimony,  thus: 

Q.  Is  there  not  some  advantage  in  being  able  to  get  his 
steel  at  the  Chicago  mills?  Isn't  that  the  only  advantage 
he   (the  Chicago  fabricator)    would  have? 

A.  Well,  he  is  close  to  his  market.  His  market  is  there, 
and  he  gets  a  profit — perhaps,  may,  often  does — on  the  same 
basis  as  the  Pittsburgh  basing  price.  He  knows  whether 
it  is  beneficial  for  him  to  do  business  in  that  way.  It  seems 
to  me  the  whole  question  is  answered  by  saying  that  the 
Chicago  people  are  pretty  prosperous,  so  far  as  I  under- 
stand. I  think  they  make  a  good  deal  larger  profits  on  their 
investments  than  we  make  on  our  steel,  with  all  the  privi- 
leges we  have. 

That  fairly  represents  the  attitude  of  the  mills.  Judge 
Gary,  in  further  testimony,  supported  his  position  by  the 
following  statement: 

"You  would  not  have  seen  any  big  business  built  up  in 
Chicago  except  for  that  basing  rate.  You  would  not  have 
seen  any  plant  at  Duluth  and  various  other  places.  Of 
course,  after  they  are  all  established  and  can  arrive  at 

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'  II  point,  if  ever,  where  the  eost  of  producing  is  not  any 
more  tlian  it  is  in  Pittshnri^h,  then  the  basing  point 
would  umturally  fade  away.     This  law  of  supply  and 

demand  will  eventually  take  care  of  this  whole  question, 
in  my  judgment." 

And  the  answer  of  the  United  States  Steel  Corporation 

to  the  original  application  for  a  complaint  in  the  pending 

case,  also  stresses  this  point,  thus: 

"The  practice  above  described  (^Pittsburgh  Plus*)  long 
since  became  and  still  remains  a  settled  custom  in  the  (steel) 
trade.  The  business  of  producers  and  consumers  have  been 
arranged,  manufacturing  and  fabricating  plants  have  been 
located,  and  vast  investments  of  capital  have  been  made 
in  reliance  upon  it.  To  change  such  practice  by  order 
of  the  commission  or  in  any  other  way  than  by  the  orderly 
processes  of  trade  would  create  great  confusion  in  the  indus- 
try and  cause  incalculable  loss  to  a  large  number  of  con- 
cerns engaged  in  the  business,  and,  respondents  submit, 
should  not  be  attempted." 

Denial  by  West  and  South 

In  reply,  it  is  specifically  denied  that  western  and  southern 
industry  has  been  built  up  under  the  ^Tittsbur^h  Plus'*  prac- 
tice, as  it  n|w  exists. 

The  Duluth  situation  referred  to  by  Judge  Gary  is  inter- 
esting. It  is  in  evidence  on  the  testimony  of  Otto  Swan- 
strom,  a  Duluth  manufacturer,  and  others,  that  because  of 
the  excessive  cost  of  steel  in  the  territory  normally  tributary 
to  the  Duluth  mill,  there  is  little  manufacture  there  of  com- 
modities made  from  steel.  Therefore,  the  output  of  the 
Duluth  mill  is  not  consumed  in  its  own  normal  territory, 
but  is  only  partly  finished,  and  is  shipped  in  semi-finished 
form  to  Milwaukee,  Chicago  and  eastern  points,  because 
of  the  lack  of  Duluth  demand  for  finished  steel  products. 

Thus  the  "plus'*  at  Duluth  is  lost  to  the  mill,  as  it  is 
absorbed  by  the  payment  of  actual  freight  on  the  southward 
and  eastward  shipment  of  the  mill's  product.  In  this  case 
"Pittsburgh  Plus'*  largely  defeats  its  own  purpose,  for  the 
lack  of  absorptive  power,  due  to  the  high  price  of  steel  at 
Duluth,  caused  by  the  "Pittsburgh  Plus"  charge  of  $12  per 
ton,  compels  the  Duluth  mill  to  forego  most  of  this  charge, 
and  at  the  same  time  discourages  industry  which  would 
otherwise  use  its  steel. 

As  there  is  no  dispute  that  the  Duluth  mill  ships  by  far 
the  most  of  its  product  out  of  its  normal  territory,  and  to 
the  south  and  east,  Judge  Gary's  reliance  upon  "Pittsburgh 
Plus"  as  a  builder  of  steel  mills  and  of  the  steel  industry 
is  evidently  misplaced  in  the  case  of  Duluth,  which  he  spe- 
cifically cites. 

Obviously,  the  United  States  Steel  Corporation  could,  if 
it  would,  sell  its  steel  at  Duluth  at  the  same  net  price  it 
ictually  obtains  for  it  by  selling  it  elsewhere.     It  would 

us  foster  industry  at  Duluth  and  create  a  Duluth  market 
m  its  product.     But  this  would  injure  Pittsburgh. 

Must  Locate  at  Pittsburgh 

It  is  pointed  out  that  much  western  and  southern  business 
— especially  western  business,  as  the  south  presents  a  some- 
what different  problem — was  established  before  "Pittsburgh 
Plus"  became  settled  practice. 

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That  their  condition  is  serious*  was  testified  to  by  numerous 
western  fabri<iators^  many  of  whohi  said  that  if  "Pittsburgh 
Plus"  were  to  reniain  they  faced  the  choice  of  two  courses, 
either  to  go  out  o^jbusipess,ientirely,  or  to  move  their  plants 
to  the  Pittsburgh  district. 

Judge  Gary  conceded  that  the  "Pittsburgh  Plus"  practice 
;  restricts  wiestern  manufacturers  and  fabricators  to  their  own 
immediate  neighborhood  while  permitting  their  Pittsburgh 
(Competitors  the  entire  country  as  a  trade  territory.  He 
admitted  that  western  manufacturers  and  fabricators  could 
not  compete  to  the  eastward  of  their  plants,  while  their 
Pittsburgh  trade  rivals  could  compete  on  equal  or  better 
than  equal  terms  anywhere. 

His  testimony  is  interesting — and  also  somewhat  cynical. 
The  remedy  he  suggests  to  western  fabricators  is  that  if 
they  are  not  satisfied  with  conditions  in  their  present  locali- 
ties, they  may  either  remove  their  entire  plants  to  Pittsburgh 
or  erect  additional  plants  there — the  very  thing  the  harassed 
western  manufacturers  say  they  will  have  to  do  if  "Pitts- 
burgh Plus"  is  maintained.     He  said : 

"Now,  if  he  (the  western  fabricator)  thinks  there  is 
an  advantage  to  the  Pittsburgh  man,  there  is  nothing  to 
prevent  him  from  establishing  a  plant  of  his  own  near 
Pittsburgh  or  in  Pittsburgh  and  buying  the  Pittsburgh  steel. 
There  is  no  reason  why  he  cannot  fully  protect  himself. 
It  just  depends  upon  whether  the  business  will  justify  that. 
I  think  some  of  the  erectors  have  done  that  very  thing.". 

The  admission  by  Judge  Gary  that  "some  of  the  erectors 
have  done  that  very  thing,"  shows  what  effect  the  practice 
has  had  upon  industry  in  the  west,  despite  the  fact  that 
mills  in  the  Chicago  district  are  lower  cost  producers  than 
those  of  Pittsburgh. 

Risk  in  Manufacturing 

Judge  Gary  further  admitted  that  control  of  selling  prices 

will  drive  many  manufacturers  out  of  business,  his  testimony 

being  as  follows: 

"The  manufacturer  runs  a  great  deal  of  risk — a  great 
deal  of  risk — and  you  have  got  to  give  him  a  fair  return, 
otherwise  he  will  go  out  of  business.  Not  only  that,  you 
have  got  to  give  him  what  he  considers  a  fair  return,  or  he 
will  go  out  of  business.  You  undertake  to  control  the  sell- 
ing prices  of  manufactured  articles,  and  the  first  thing  you 
know  you  will  drive  a  lot  of  them  out  of  business,  and  all 
that  works  against  the  consumer,  the  great  public  that  you 
are  trying  to  protect." 

It  is  true  that  the  above  statement  referred  to  the  manu- 
facturers of  basic  steel,  but  if  true  with  them,  it  certainly 
has  equal  force  when  applied  to  the  manufacturers  of  com- 
niodities  made  from  steel.  As  the  opponents  of  "Pittsburgh 
Plus"  insist  that  this  device  in  fact  controls  the  selling  price 
of  such  commodities,  and  also  fails  to  give  a  "fair  return" 
to  manufacturers  in  the  west  and  south,  they  cite  Judge 
Gary's  words  against  himself  and  aver  that  the  effect  he 
predicts  will  follow — and  has  already  followed — the  work- 
ing of  "Pittsburgh  Plus." 

Additional  force  is  given  this  contention  by  other  portions 
of  Judge  Gary's  testimony.     Among  other  things,  he  said : 

*'I  said  that  the  erector  buying  his  fabricating  material 
in  Chicago  or  in  Pittsburgh  would  like  td  be  in  a  position  to 
compete  with  the  producer  of  fabricated  material  in  Pitts- 

41 


burgh.  There  is  nothing  to  prevent  his  building  an  erect- 
ing shop— whatever  they  call  it — an  assembly  shop,  in 
Pittsburgh,  and  thus  be  on  a  par  with  Pittsburgh— buy 
steel  there.  Of  course,  all  markets  should  be  free  to  every- 
body. I  believe  in  open  competition  and  a  free  field  for 
everyone  in  every  department  of  human  activity." 

Centralizes  Industry 

Further  testimony  by'  Judge  Gary  along  the  same  line  is 
also  enlightening.  It  contains  similar  admissions  that  *Titts- 
burgh    Pl.us"    operates    to    center    the    steel    industry    in 

Pittsburgh : 

Q,  Now,  I  believe  you  said  that  the  Pittsburgh  base  was 
a  good  thing  for  the  consumer  as  well  as  the  producer — ^the 
Pittsburgh  basing  system. 

A.     I  think  la 

Q.  Do  you  think  it  is  a  good  thing  for  a  consumer  in 
Chicago,  a  consumer  who  uses  heavy  steel  material,  sUch 
a?  a  structural  builder,  who  cannot  take  advantage  of  the 
natural  growth  in  his  territory,  but  must  divide  that  with 
the  Pittsburgh  and  eastern  fabricators? 

A.  Well,  1  don't  see  how  he  could  be  prevented  under 
any  circumstances  from  dividing  any  territory  with  anyone 
who  was  competing  to  such  an  extent  as  to  get  the  business. 

Q.  All  right.  Then  add  to  that  fact  that  he  is  not  able 
to  go  into  the  Pittsburgh  district  and  divide  the  natural 
business  growth  of  that  territory  with  Pittsburgh. 

A.    Yes,  he  is  at  perfect  liberty  to  do  so. 

Q.  Yes,  but  here  is  a  case  where  the  cost  of  the  steel, 
at  the  time  we  took  testimony  in  Chicago,  was  $7.60  more 
than  the  Pittsburgh  fabricator  paid.  How  can  the  struc- 
tural man  compete  on  that  basis  with  the  Pittsburgh  fabri- 
cator in  Pittsburgh? 

A.  Well,  now,  in  such  a  case  as  that,  I  should  think 
the  Chicago  man  would  establish  a  plant  in  Pittsburgh 
and  buy  his  steel  there,  instead  of  buying  at  Chicago, 
if  he  wanted  that  territory. 

Q.  Under  that  condition  which  you  have  just  stated,  if 
*  everybody  wanted  to  market  all  over  the  United  States, 
they  would  have  to  locate  at  Pittsburgh  in  order  to 
compete  with  everybody  else.  In  other  words,  if  a  Chi- 
cago manufacturer  living  at  Chicago  all  his  life  wanted 
to  go  into  the  structural  business  and  wanted  to  com- 
pete all  over  the  United  States,  he  couldn't  settle  down 
in  Chicago  under  this  system,  could  he?  He  would  have 
to  go  to  Pittsbui^h. 

A.  The  market  tributary  to  Chicago  is  so  Jarge  he 
wouldn*t    abandon    that  nlace,    if    he    is    established    there 

probably,  but  very  likely  he  would  build  another  plant 
at  Pittsburgli. 

Q.    It  would  necessitate  his  building  another  plant 

then? 
A.    It  would  necessitate  that. 

Western  Claim  Admitted 

This  testimony  absolutely  admits  that  western  manufac- 
turers are  restricted  to  the  territory  immediately  adjacent 
to  them,  and  even  here  must  meet  Pittsburgh  competition 
on  even  terms.  This  point  is  emphasized  by  further  testi- 
mony of  Judge  Gary  as  follows: 

Q.  Well,  now,' do  you  think  it  fair  to  the  consumer 
where,  as  a  witness  testified  in  Chicago,  he  wanted  to 
compete  on  a  job  in  Detroit  against  a  Detroit  manufacturer, 
both  buying  their  steel  from  the  Chicago  mills,  the  Chicago 
man  taking  delivery  at  the  mill?  In  that  case,  the  Detroit 
man  wa&  able  to  get  his  steel  some  seven  dollars  or  more 
cheaper  than  the  Chicago  manufacturer. 

A.    Where  did  he  buy  it? 

Q,    He  bought  it  at  the  Chicago  mills. 


A.     And  at  the  same  time? 

Q.  At  the  same  time.  In  other  words,  the  Chicago  mill, 
of  course,  was  selling  on  the  Pittsburgh  base  price  plus  the 
freight,  so  that  the  Detroit  manufacturer  got  his  steel  for 
something  over  seven  dollars  cheaper  than  the  Chicago 
manufacturer  and  both  got  it  at  the  same  place.  Now,  in 
that  case,  of  course,  as  the  testimony  shows,  the  Chicago 
manufacturer  could  not  compete  on  that  job  in  Detroit, 
and  yet  the  Detroit  man  could  go  into  Chicago  and^  com- 
pete, so  far  as  the  cost  of  steel  is  concerned,  on  any  job  in 

Chicago. 

A.  If  I  understand  that  question,  you  ask  me  if  I  think 
it  would  be  fair  for  the  Chicago  producer  (the  steel  mills) 
to  discriminate  against  one  customer  in  favor  of  another  at 
the  same  time.  I  don't  know  anything  about  the  fa4;ts, 
but  assuming  that  they  did  so,  did  discriminate,  I  would 
say  I  don't  think  it  is  fair.  I  don't  think  anybody  can 
object  to  that.  I  don't  know  what  bearing  that  has  upon 
the  case.  I  don't  decide  that.  I  don't  believe  the  facts  justify 
your  question,  but  I  don't  know. 

Industry  Restricted 

Judge  Gary  also  admitted  that,  w^hile  Chicago  and  other 
western  industrial  centers  are  restricted,  Pittsburgh  fabri- 
cators are  able  to  compete  all  over  the  country.  He  testified 
thus : 

Q.  As  a  matter  of  fact,  isn't  the  territory  of  Pitts- 
burgh througliojut  the  United  States,  under  the  Pitts- 
burgh basing  system? 

A.    I  think  it  is,  if  that  is  what  you  mean  to  ask  me. 

Q.  So  far  as  the  Chicago  territory  is  concerned,  the 
freight  rates  would  govern  its  market.  Is  that  true?  *  *  ♦  * 
In  other  words,  they  cannot  go  east  to  any  considerable 
extent.     That  is  true,  is  it  not? 

A.     Yes,  that  is  true.  ^ 

Q.  While  the  Chicago  fabricator,  under  the  Pittsburgh 
basis,  cannot  go  into  Pittsburgh,  the  Pittsburgh  fabricator 
can  go  into  Chicago.  That  is  true,  isn't  it — under  the  Pitts- 
burgh basing  system? 

A.    Well,  I  should  think  so;  yes — practically. 

Q.     So  that  if  you  had  a  mill  base  where  the  price  was 
the  same  at  Chicago  as  at  Pittsburgh,  under  that  condition 
the  fabricator  at  Chicago  could  go  halfway  to  Pittsburgh  on 
an  equality  with  the  Pittsburgh  fabricator  coming  to  that     ^ 
same  point?     Is  that  true? 

A.     I  should  think  so. 

Abandon  Western  Plants 

This  testimony,  as  well  as  the  facts,  shows  that  western 
industry  today  has  no  cause  for  gratitude  to  "Pittsburgh 
Plus"  for  its  existence,  but  that  in  many  lines  industry  is 
being  driven  out  of  the  west  because  of  inability  to  compete 
with  Pittsburgh.  Judge  Gary  lays  stress  on  **cost  of  pro- 
duction" as  governing  location,  and  yet  he  has  admitted 
production  cost  in  the  Chicago  district  to  be  less  than  at 
Pittsburgh,  and  the  figures  given  by  his  corporation  cor- 
roborate his  own  statement  made  at  Duluth. 

Testimony  in  the  pending  case  is  voluminous  that  western 
fabricators  are  being  compelled  to  abandon  their  western 
plants,  or  to  build  in  or  about  Pittsburgh,  and  there  is 
abundant  evidence  that  *Tittsburgh  Plus"  has  caused  the 
failure  of  numerous  western  enterprises. 

Abatement  at  Birmingham 

That  the  full  "Pittsburgh  Plus"  is  not  a  fair  or  just 
device  and  does  not  precisely  measure  any  difference  which 

43 


f 


conditions  would  justify  is  apparently  cohceded  in  the  case 
of  BiiMfrigham.  Here,  as  Judge  Gary  and  other  United 
States  Steel  Corporation  officials  have  admitted,  in,  prder 
to  stimulate  southern  industry,  the  full  "Pittsburgh  Plus" 
charge  was  removed  and  an  arbitrary  differential,  first  of 
$3  and  later,  with  increased  freight  rates,  of  $5  per  ton  was 
imposed.     On  this  point  Judge  Gary  testified: 

Q.    The  Birmingham  price  is  purely  arbitrary,  is  it  not? 

A.    Which  price? 

Q.  The  price  at  Birmingham,  which  is  the  $5  differen- 
tial above  the  Pittsburgh  price. 

A.  I  think  it'  is.  That  is  my  impression,  that  it  is 
arbitrary  in  the  sense  of  the  producer  insisting  upon  it, 
probably,  and  the  consumer  consenting. 

Several  southern  fabricators,  long  before  the  present  suit, 
protested  against  "Pittsburgh  Plui,"  and,  as  Col.  Bope's 
testimony  shows,  there  was  continuous  agitation  for  a  change, 
so  that  southern  industry  might  thrive.  This  finally  resulted 
in  the  substitution  of  the  differential  for  the  full  "Pittsburgh 
Plus"  charge.  While  this  differential  aided  southern  manu- 
facturers, as  it  is  less  than  half  the  full  *Tittsburgh  Plus" 
charge,  yet  there  is  continued  protest  in  the  south  because 
of  the  unfairness  of  any  discrimination. 

However,  the  fact  that  this  differential  and  reduction  of 
the  "Pittsburgh  Plus"  charge  was  made  for  the  purpose 
of  fostering  southern  industry  seems  a  complete  refutation 
of  the  contention  that  western  industry  was  "upbuilt  under 
and  because  of  Tittsburgh  Plus',"  since  southern  industry 
languished  under  it,  and  it  required  at  least  a  partial  abate- 
ment to  stimulate  industry  in  the  south. 

Therefore,  it  seems  obvious  that  the  contention  of  the 
mills  on  this  score  has  little  justification.  Western  industry 
certainly  Has  k  right  to  complain  of  a  constantly  increasing 
charge.  Western  industry  can  hardly  be  held  to  account 
for  settling  at  favorable  points  of  distribution,  especially 
when  the  establi^ment  of  great  western  mills  was  a  fact 
heralded  at  first  as  promising  lower-cost  steel. 


I 


■J 


Age  No  Justification 

So  far  as  "length  of  usage"  is  concerned  as  a  justifica- 
tion for  "Pittsburgh  Plus,"  if  this  practice  is  economically 
wrong;  ajfitd  if  it  is  unfair,  unjust  and  imposes  an  unwar- 
ranted and  insupportable  hardship  upon  industry  outside  of 
Pittsbu^rgh,  the  fact  that  this  hardship  is  of  long  standing 
offers  tio  additional  reason  for  its  further  continuance.  No 
additional  respectability  inheres  to  viciousness  because  of  age. 

Besides,  there  have  been  nebulous  promises,  from. time  to 
time,  that  ^'Pittsburgh  Plus"  would  be  abandoned  in  the 
west,  and  it  was  on  the  strength  of  such  intimations  that 
many  industries  located  when  and  where  they  did.  Others 
located  at  seemingly  favorable  points  only  to  find  that 
"Pittsburgh  Plus"  practically  choked  progress  and  even 
strangled  the  industry  itself,  while  still  others,  expanding 
in  times  of  exceptional  prosperity,  found  later  that  they  could 
not  live  under  normal  conditions  because  of  this  handicap. 

Tearing  Down  and  Building  Up 

One  of  the  principal  claims  of  the  mills  is  that  the  entire 
controversy  is  merely  a  quarrel  within  the  steel  industry, 

44 


i 


by  which  fabricators  in  the  west  and  south  are  seeking  to 
make  a  greater  profit,  at  the  expense  of  the  legitimate  profits 
of  the  mills. 

That  is,  that  the  consumers  will  not' really  reap  any 
benefit  from  the  abolition  of  "Pittsburgh  Plus,"  and  that 
neither  will  the  nation's  industry,  as  a  whole,  be  benefitted, 
but  that  the  real  result  will  be  the  "tearing  down"  of 
Pittsburgh,  to  build  up  other  sections.  This  point  is  specific- 
ally made  in  the  following  statement  of  the  Jones  and 
Laughlin  Steel  Corporation,  of  Pittsburgh,  to  the  Federal 
Trade  Commission,  in  the  pending  case: 


"The  general  effect  of  making  Chicago  a  basing  point 
would  be  a  depreciation  of  investment  in  the  Pittsburgh 
district  and  a  call  for  new  and  additional  investment  in 
the  Chicago  district.  This  would  mean  tearing  down  in 
one  district  and  building  up  in  another  without  changing 
the  country's  total  steel  production  and  would  also  result 
in  a  depreciation — in  some  cases  the  destruction — of  indus- 
tries which  have  been  built  up  in  the  Pittsburgh  district 
to  supply  the  needs  of  the  iron  and  steel  mills  located  there. 

"It  would  be, a  narrow  view  of  the  question  that  would 
give  consideration  only  to  the  steel  industry  of  the  country. 
Many  other  interests  are  necessarily  affected— -the  merchant 
who  has  established  himself  under  trade  conditions  as  they 
now  are  with  Pittsburgh  as  the  basing  point;  the  small 
manufacturer  who  buys  a  carload  of  steel  or  more  and 
works  it  up  into  a  hundred  different  articles;  the  workmen 
who  own  their  own  homes  in  the  Pittsburgh  district  and 
who  would  be  compelled  to  leave  them  to  make  homes 
elsewhere — the  interests  that  would  be  affected  are  very 
many  and  the  injury  almost  incalculable,  because  such  inter- 
ests represent  the  growth  and  development  of  this  country/ 
for  at  least  a  century."  J 

This  is  interesting! 

But  how  about  the  small  manufacturers  and  workmen 
and  farmers  and  consumers  elsewhere?  Alas,  of  these  the 
Jones  &  Laughlin  answer  says  never  a  word. 

''Graveyards''  in  Steel 

And  yet,  it  is  claimed — and  there  are  abundant  facts  to 
buttress  the  claim — that  this  practice  handicaps  industry 
everywhere,  except  in  and  about  Pittsburgh;  that  it  has 
caused  numerous  "graveyards"  in  the  steel  industry  through- 
out the  country,  and  that  it  levies  a  constant  toll  upon  the 
ultimate  consumer  and  the  taxpayer  as  well  as  upon  indus- 
try, that  there  may  be  no  "tearing  down"  in  Pittsburgh. 
That  is,  that  Pittsburgh  investments  may  be  maintained 
unimpaired. 

Are  Pittsburgh  investments  clothed  with  such  superior 
sanctity  that  the  rest  of  the  country  must  remain  under 
constant  tribute  to  them?  If  this  argument  is  to  be  heard, 
it  is  further  contended  that  no  matter  how  economic  condi- 
tions may  alter;  no  matter  what  the  future  may  bring  in 
the  way  of  discovery  of  new  processes  and  new  supplies  of 
the  basic  materials  of  which  steel  is  made ;  no  matter  what 
the  future  normal  trend  of  industry  and  population,  this 
same  tender  solicitude  for  Pittsburgh  investments  would 
prevent  any  change  in  method  in  the  steel  industry  that 
might  result  "in  a  depreciation  of  industries  which  have 
been  built  up  in  the  Pittsburgh  district  to  supply  the  needs 
of  the  iron  and  steel  mills  located  there." 

45 


ilai 


Must  the  country  forever  remain  under  the  domination 
of  Pittsburgh  and  of  those  who  have  invested  their  money 
there,  merely  because  a  change  would  depreciate  Pittsburgh 
investments?  Why  must  an  exception  be  made  to  the  gen- 
eral rule  of  industry,  which  is  that  when  a  plant  or  a  locality 
becomes  obsolete  for  the  production  of  a  commodity,  that 
the  obsolete  or  obsolescent  machinery  must  be  sacrificed  be- 
fore newer  methods  or  better  locations? 


I 


The  Rise  of  Pittsburgh 

It  was  due  to  this  rule  that  Pittsburgh  itself  became  the 
leading  factor  in  the  steel  industry.  Prior  to  the  advent  of 
Andrew  Carnegie,  the  principal  seat  of  the  industry  was 
near  Philadelphia  and  in  New  Jersey.  Carnegie  saw  the 
opportunities  of  Pittsburgh.  He  started  his  mill  at  Pitts- 
burgh and  soon  outstripped  all  competitors.  The  earlier 
eastern  mills  went  down  before  the  conquering  Pittsburgh 
industrialist,  and  there  was  a  '^tearing  down"  in  Philadelphia 
and  New  Jersey,  that  Pittsburgh  might  be  built  up. 

(But  It  was  the  country  which  benefiteil,  for  Pittsburgh 
wm  then  far  better  situated  for  the  economical  and  efficient 
production  and  distribution  of  steel.  The  iron  ore,  coal,  coke 
md  limestone  were  close  at  hand,  and  Pittsburgh  was  closer 
o  the  center  of  pdjpulation,  then,  as  since,  constantly  moving 
westward. 

I    Pittsburgh  will  remain  an  important  factor  in  the  steel 
trade,  even  with  "Pittsburgh  Plus'*  relegated  to  the  limbo 
jbf  things  forgotten,  for  Pittsburgh  remains  and  will  remain 
Ian  important  steel  center,  with  a  great  manufacturing  dis- 
Itrict  surrounding  it ;  with  the  central  east  as  its  natural  and 
Viormal  market,  and  protected  by  natural'  freight  rates  from 
other  districts  which  may  seek  to  encroach  upon  that  market. 
Can  Pittsburgh— in  the  light  of  her  past  history  in  the 
steel  industry— justly  ask  for  more?    Is  Pittsburgh  entitled 
to  more?     Is  there  anything  sacrosanct  about  Pittsburgh 
which  should  give  her  more?    And  will  not  the  nation  as 
easily  adjust  itself  to  the  new  and  changed  conditions  as  it 
did  to  the  change  from  Philadelphia  and   New  Jersey  to 
Pittsburgh  as  the  seat  of  steel  production?     The  plea  of 
the  Jones  &  Laughlin  Corporation  might  be  received  with 
somewhat   more   toleration,    if   the   element   of   sheer   self- 
interest  were  not  so  plainly  apparent. 


What  Is  ''Narrow  View?'' 

**It  would  be  a  narrow  view  of  the  question  that  would 
give  consideration  only  to  the  steel  industry  of  the  country." 
So  states  the  Jones  &  Laughlin  Corporation,  and  so  say  the 
opponents  of  "Pittsburgh  Plus."  But  in  their  avoidance  of 
this  narrowness,  the  latter  take  into  consideration  the  interest 
of  the  entire  country — of  the  farmers,  taxpayers,  workmen 
and  manufacturers  in  districts  other  than  Pittsburgh — rather 
than  the  sole  interest  of  Pittsburgh.  The  "narrow  view," 
they  say,  is  that  Pittsburgh  alone  is  entitled  to  consideration. 

Against  the  contention  that  this  controversy  is  merely  a 
question  of  whether  the  steel  mills  or  fabricators  elsewhere 
than  at  Pittsburgh  shall  make  an  excessive  profit,  the  oppo- 
nents of  "Pittsburgh  Plus"  counter  heavily.     They  show 

4€ 


that  they  would  not  gain  in  profits  by  the  abolition  of 
"Pittsburgh  Plus,"  but  admit  that  they  would  gain  vastly 
in  being  permitted  their  own  rightful  trade  territory. 

There  is  no  "base  price"  in  the  products  fabricated  from 
steel  to  protect  the  fabricator  against  competition.  He  must 
operate  under  the  normal  laws  of  industry,  which  permit 
him  to  charge  only  actual  freight.  If  he  is  favored  by  loca- 
tion so  that  he  can  sell  cheaper  than  a  competitor  at  a  greater 
distance,  he  gets  the  business.  If  not,  and  he  cannot  make 
up  for  disadvantageous  location  by  superiority  of  manufac- 
turing methods,  his  competitor  gets  the  business.  That  is 
the  normal  law  of  industry  when  some  such  practice  as 
"Pittsburgh  Plus"  does  not  step  in  and  clog  its  working. 
But  under  "Pittsburgh  Plus,"  with  Pittsburgh  competing 
everywhere  equally,  there  is  no  advantage  of  location  out- 
side of  Pittsburgh. 

Not  a  Quarrel  Over  Profits 

That  the  fabricator  does  nqt  get  additional  profits  when 
"Pittsburgh  Plus"  is  not  operative  is  •shown  in  the  pending 
case  by  the  testimony  of  numerous  witnesses  that  sharp  trade 
competition  operates  to  keep  prices  down  to  a  point  where 
production  cost  plus  a  normal  profit  is  all  that  can  be  gleaned. 
Irrefutable  evidence  of  this  is  also  afforded  by  the  fact  that! 
when  the  "Pittsburgh  Plus"  charge  was  taken  off  steel  platesJ 
shapes  and  bars  in  the  Chicago  market  in  1921,  the  price  of 
agricultural  implements  and  other  steel  products  promptl3 
moved  downward.  This  would  seem  effectually  to  dispos( 
of  the  claim  that  the  "Pittsburgh  Plus"  controversy  is  only' 
a  quarrel  over  profits,  but  it  is  interesting  to  note  that  the 
mills,  by  implication  at  least,  admit  that  under  the  opera- 
tion of  "Pittsburgh  Plus"  they  are  the  ones  who  are  actually 
making  the  excessive  profit. 

This  apprehension  of  Pittsburgh  over  the  passing  of  its 
supremacy  in  the  steel  trade  is  not  new.  It  had  happened 
before,  with  the  erection  of  the  United  States  Steel  Cor- 
poration's great  mill  at  Gary,  and  it  was  then  that  Col.  Bope 
made  the  speech  in  which  he  told  his  Pittsburgh  auditors 
that  "the  handwriting  was  upon  the  wall"  for  mills  and 
plants  in  the  Pittsburgh  district. 

Trend  of  Population 

The  trend  of  population  is  and  has  been  westward.  Also, 
there  is  a  trend  to  the  south.  Still  the  greatest  consumptive 
rnarkets  remain  in  the  east,  and  probably  will  for  some  time 
to  come. 

However,  in  the  west  the  markets  are  "gathering  up,"  to  use 
the  words  of  Col.  Bope.  It  was  for  this  reason  mainly  that 
steel  mil^s  were  established  in  the  west  and  south — to  be  near 
the  markets  and  close  to  the  points  of  supply  of  raw  material. 

While  the  east  is  still  the  greatest  center  of  consumption, 
and  while  increased  export  demand  for  manufactured  prod- 
ucts will  add  to  the  consumptive  power  of  the  east,  the  con- 
stant shifting  of  the  center  of  population  to  the  westward 
means  increased  consumptive  demand  in  the  west. 

To  insure  better  distribution  facilities,  it  is  highly  desir- 
able to  have  industry  as  close  as  is  feasible  and  practical  to 

47 


-^ 


centers  of  population.  This  is  recognized  by  manufacturing 
concerns  in  other  lines  in  the  establishment  of  branch  plants 
near  points  of  large  and  increasing  consumptive  demand. 

But  this  does  not  hold  with  steel  because  of  the  tendency 
of  "Pittsburgh  Plus"  to  center  all  steel  manufacture  at 
Pittsburgh. 

It  is  sometimes  more  desirable  to  establish  plants  at  points 
where  cost  of  manufacture  is  slightly  higher  than  at  others, 
because  lower  distribution  costs  more  than  compensate  for 
this  difference.  It  is  for  this  reason  that  Pittsburgh,  even 
without  "Pittsburgh  Plus,"  will  remain  an  important  seat 
of  steel  manufacture.  But  with  "Pittsburgh  Plus"  in  effect, 
these  economies  of  distribution  cannot  be  effected,  because 
with  the  fabricators  of  Pittsburgh  able  to  lay  down  their 
product  at  any  point  in  the  country  upon  an  equality  with 
local  fabricators,  the  saving  from  lower  distributing  cost 
is  lost. 

Normal  Trade  Territory 

A  particularly  grave  charge  brought  against  "Pittsburgh 
Plus"  is  that  it  is  unfair  in  the  denial  to  manufacturers  of 
their  normal  trade  territory,  by  permitting  Pittsburgh  manu- 
facturers to  compete  on  equal  or  better  than  equal  terms, 
even  in  the  home  cities  of  local  manufacturers. 

That  "Pittsburgh  Plus"  discriminates  against  manufac- 
turers elsewhere  than  in  and  about  Pittsburgh  is  manifest. 
The  freight  rate  upon  finished  steel  products  is  usually  the 
same  as  upon  raw  steel.  Consequently,  assuming  equal  labor 
costs  and  efficiency  of  manufacture,  it  is  plain  that  the 
Pittsburgh  manufacturer  can  lay  down  his  product  in  any 
city  in  the  country  on  terms  of  exact  cost  equality  with 
local  manufacturers.  In  fact,  in  many  cases,  the  Pittsburgh 
manufacturer  enjoys  a  distinct  advantage  over  local  manu- 
facturers, even  in  their  home  cities.  This  is  because  the 
Pittsburgh  manufacturer,  having  the  whole  country  as  hisj 
trading  territory,  is  able  to  reduce  his  average  "overhead" 
charge. 

But  this  does  not  really  promote  efficiency  and  economy. 
What  is  gained  in  this  spread  of  "overhead  cost"  is  more 
than  offset  by  the  additional  unearned  freight  charges  which 
consumers  elsewhere  must  pay. 

Doors  of  Opportunity  Shut 

With  local  manufacturers  in  other  cities  compelled  to  pay 
the  same  price  for  steel  laid  down  at  their  plants  as  the 
Pittsburgh  manufacturer  pays  for  his  finished  product  laid 
down  in  the  same  city,  the  doors  of  the  steel  trade  through- 
out the  country  are  widely  opened  to  the  Pittsburgh  fabri- 
cators. But  they  are  closed  tight  to  fabricators  elsewhere, 
except  in  their  own  immediate  neighborhood,  or  in  such  cases 
where  steel  cost  plays  a  relatively  unimportant  part  of  the 
cost  of  the  finished  product,  or  where  the  product  is  pro- 
tected by  patent,  or  where  the  difference  in  efficiency  of 
operation  is'so  heavily  in  favor  of  the  local  man  that  he'can 
thus  overcome  the  handicap  imposed  by  "Pittsburgh  Plus." 

As  illustrative  of  the  manner  in  which  Pittsburgh  domin- 
ates the  steel  trade,  the  fact  that  when  the  western  manu- 
facurer  seeks  to  sell  to  the  eastward  of  his  plant,  he  is  at 

48 


I 


i 


o^ce  heavily  handicapped,  must  be  obvious.  He -must  payi 
the  unearned  freight  charge  on  his  raw  steel  from  Pittsburgh! 
to  his  plant,  and  the  actual  earned  freight  on  the  goods  he 
ships  eastward,  while  the  Pittsburgh  manufacturer  only  pays 
the  actual  earned  freight  charge  to  the  point  of  destination! 
of  his  goods.  This  caused  a  Minnesota  manufacturer  of 
tractors  to  remark  wittily  that  the  state  of  Minnesota  is 
industrially  "bounded  on  the  east  by  'Pittsburgh  Plus'." 

,  Here  agaiij  it  is  matter  of  complaint  that  "Pittsburgh 
Plus"  takes  no  account  of , efficiency  and  economy  of  produc- 
tion or  distribution,  either  ip  basic  steel  or  finished  products,, 
but  arbitrarily  centers  the  manufacture  of  most  steel  prod- 
ucts in  the  neighborhopd;of  Pittsburgh.  This  prevents  that 
diffusion  of  industry  which  the  nation  demajpds  in  Oirder 
that  its  industrial  lifeblood  may  flow  healthfully  through  itsi 
arteries  at  all  times,  and  that  prosperity  may  be  generally, 
diffused  and  constant-  It  also  tends  to  prevent  the  utili^sa- 
tion  of  superior  facilities  for  manufacturing  elsewhere  than^ 
in  Pittsburgh. 

Diffusion  of  Industry 

This  is  harmful  where  the  point  of  centralization  is  not 
that  of  most  economical  and  efficient  production  and  dis- 
tribution. Yet  arbitrary  centralization  of  industry  invariably 
has  a  tendency  to  veer  away  from  points  of  most  efficient 
ahd  economical  production  and  distribution,  since  it  is  costly 
to  make  changes.  ' 

But  the  war  demonstrated  the  advisability  of  widely  dif- 
fused industry.  There  are  numerous  reasons  for  this..  When 
a  sudden  great  demand  is  made  upon  production  it  is  k 
practical  impossibility  to  mobilize  and  house  an  adequate 
labor  or  material  supply  in  a  single  point,  especially  when 
this  point  is  not  the  one  most  advantageously  situated. 

-  Besides,  it  is  highly  desirable  to  have  prosperity  generally 
diffused, ibut  this  is  plainly  impossible  where  certain  sections 
are  discriminated  against.  ^ 


Advance  in  Freight  Rates 

In  the  early  days  of  the  "Pittsburgh  Plus"  practice  its 
effects  were  not  so  severely  felt,  especially  in  the  west,  be- 
cause freight  rates  were  then  relatively  low.  In  1901,  when 
"Pittsburgh  Plus"  became  settled  practice,  the  rate  from 
l^ittsburgh  to  Chicago  was  only  $3  per  ton.  In  1920  it 
reached  its  peak  of  $7.60  per  ton.  Since  then  the  freight 
fate  on  steel  has  been  reduced  10  per  cent,  and  today  the 
rkih  from  Pittsburgh  to  Chicago  is  $5.80  per  ton. 

Bet\^een  1901  and  now  the  rate  has  been  increased  over 
125  per  cent,  while  the  increase  between  1901  and  the  peak, 
rate  of  $7.60  was  apprpximately  153  per  cent. 

'  Therefore,  the  industries  established  in  and  about  the 
western  steel  producing  centers  were  not  subject  to  anythingt 
like  the  present  severe  hardships,  when  "Pittsburgh  Plus" 
first  became  settled  practice.  This  is  evidenced  by  a  his- 
torical j:omparison  of  the  freight  rates  from  Pittsburgh  tO' 
Chicago  from  1901  to  the  present.  What  occurred  with  the 
r,ate  to  Chicago  held  true  in  even  greater  degree  in  the  cases: 

4? 


of  other  steel  producing  centers,  such  as  Duluth.    The  fol- 
lowing table  shows  how  the  rate  increased  from  1905: 

February  21,    1905 .$3.60  per  ton 

July  1,  1906. 3.78  per  ton 

September  20,    1917. 4.30  per  ton 

June  25,   1918 5.40  per  ton 

September    1,   1920 7.60  per  ton 

(Rates  to  all  other  points  advanced  in  proportion.) 
Even  the  most  enterprising  and  aggressive  western  manu- 
facturers, when  this  differential  came  to  be  from  15  to  20 
per  cent  of  the  total  cost  of  their  product,  were  in  most 
cases  either  out  of  the  market  or  restricted  to  their  own 
immediate  environment. 

Handicap  ta  West 

The  injury  suffered  by  western  and  southern  industry 
because  of  *Tittsburgh  Plus"  is  the  most  vital  matter  con- 
nected with  this  practice. 

The  most  serious  factor  is  the  denial  to  western  industry 
of  its  own  normal  trade  territory,  and  the  permission  of 
Pittsburgh  competition  throughout  the  country. 

Also,  the  denial  to  the  west  of  quantity  production,  be- 
cause of  restriction  of  sales  territory,  is  a  tremendous  handi- 
cap, while  inability  of  western  factories,  under  normal  con- 
ditions, to  sell  at  all  to  the  eastward  is  another  evil  effect  of 
^Tittsburgh  Plus." 

Judge  Gary,  in  his  testimony,  referring  to  western  fabri- 
cators, said: 

"His   (the  western  fabricator)   market  is  the  other  way, 
largely  in  the  west,  and  he  makes  his  profits  that  way." 

In  another  part  of  his  testimony,  Judge  Gary  also  stated 
that  "He  (the  fabricator)  locates  where  he  can  make  the 
most  money." 

This,  in  connection  with  the  fact  that  fabricators  in  all 
parts  of  the  country  except  Pittsburgh  are  restricted  in  their 
business  seems  to  indicate  pretty  clearly  that  so  long  as 
"Pittsburgh  Plus"  holds  sway  there  will  be  no  decentraliza- 
tion of  the  steel  industry,  no  diffusion  throughout  the  country, 
no  matter  what  the  advantages  of  other  localities. 

Handicap  to  Other  Sections 

While  western  industry  suffers  the  severest  handicap,  other 
sections  are  also  at  a  distinct  disadvantage. 

The  United  States  Steel  Corporation  mercifully  substi- 
tuted an  arbitrary  differential,  first  of  $3  per  ton,  and 
later,  with  increased  freight  rates,  of  $5  per  ton,  to  take  the 
place  of  the  full  freight  from  Pittsburgh  to  Birmingham, 
which  at  one  time  was  $15.30,  and  is  now  $11.60  per  ton, 
nevertheless,  southern  industry  is  severely  penalized. 

The  differential  of  $5  per  ton,  utterly  unwarranted  by 
difference  in  cost  of  production,  is  sufficient  to  prevent  any 
great  growth  of  the  steel  industry  in  the  south. 

However,  the  ultimate  consumer  in  the  south  is  obliged 
to  pay  this  $5  differential,  and  naturally,  he  rebels  against 
it.  Besides,  there  is  a  great  deal  of  trade  territory  which 
southern  fabricators  should  have  in  which  they  must  never- 
theless  meet  Pittsburgh  upon  practically  even  terms.  These 
are  markets  in  which  the  actual  freight  from  the  point  of 
location  of  southern  factories,  plus  the  $5  differential,  is  no 

50 


\ 


! 


greater,  or  approximately  the  same  as  the  freight  from  Pitts- 
burgh to  such  points.  These  are  numerous,  and  in  them  the 
southern  fabricator  is  at  a  distinct  disadvantage. 

Handicap  of  Duluth 

The  case  of  Duluth  is  one  of  exceptional  hardship.  Re- 
gardless of  whether  Duluth  is  a  relatively  low-cost  or  high- 
cost  producer,  the  fact  remains  that  the  amount  of  "plus" 
which  must  be  paid  by  the  Duluth  fabricator  far  exceeds 
any  possible  difference  in  steel  production  cost.  As  Duluth 
is  restricted  in  trade  area,  and  as  Pittsburgh  is  able  to 
compete  on  exactly  equal  terms  in  that  restricted  area,  it  is 
manifest  that  there  can  be  little  improvement  in  steel  in- 
dustrial conditions  in  the  territory  normally  tributary  to 
the  Duluth  mill  of  the  United  States  Steel  Corporation. 
In  fact,  that  territory  derives  little,  if  any  benefit  from  the 
location  of  the  mill  in  Duluth.  1 

The  mills  complain  that  there  is  little  market   for  the  \ 
product  of  the   Duluth   mill   in   normal   Duluth   territory. 
Naturally,  there  is  little,  for  there  can  be  little  steel  fabrica- 
tion there,  with  Pittsburgh  allowed  free  entry  into  Duluth's 
markets  in  equal  and  usually  better  than  equal  competition** 
with  Duluth  fabricators. 

Handicap  of  the  East 

While  the  greatest  handicaps  to  industry  which  "Pitts- 
burgh Plus"  imposes  fall  upon  the  west  and  south,  eastern 
industry  is  also  injured. 

Theoretically,  this  injury  is  as  grave  as  that  done  the  west 
and  south.  Practically,  it  is  not  so  acute.  Nevertheless,  the 
east  feels  the  effects  of  "Pittsburgh  Plus"  strongly,  for  it  is 
deprived  of  all  advantages  from  such  great  steel  mills  as 
those  located  at  Bethlehem,  Lebanon  and  Steelton,  Pennsyl- 
vania ;  at  Sparrow's  Point,  Maryland ;  at  Buffalo,  and  other 
mills. 

In  the  east,  as  in  the  west,  Pittsburgh  can  compete  upon 
equal  or  better  than  equal  terms  everywhere.  Because  the 
difference  in  freight  rates  is  less,  many  eastern  industrial 
concerns  are  able  to  absorb  the  unearned  charge  and  still 
prosper.  But  they  do  not  prosper  to  the  same  degree  as  they 
would  if  given  the  advantages  of  location  which  are  right- 
fully theirs. 

This  inequality  of  steel  cost  in  the  east  is  important,  and 
often  spells  the  difference  between  success  and  failure. 

These  inequalities  are  vividly  shown  in  the  subjoined 
tables.  The  rates  given  are  those  in  effect  prior  to  the  last 
rate  reduction,  which  are  10  per  cent  higher  than  the  present 
rates,  for  which  allowance  should  be  made. 

The  Bethlehem  Steel  Corporation,  prior  to  its  absorption 
of  the  Lackawanna  and  Midvale  Companies,  shipped  large 
tonnages  of  steel  into  the  Pittsburgh  and  western  districts. 
By  shipping  out  of  its  natural  district,  the  actual  freight  paid 
to  ship  the  steel  from  Bethlehem  was  more  than  the  "Plus" 
which  was  added  to  the  Pittsburgh  price. 

In  the  following  table  a  price  of  $50  per  ton  is  assumed 
for  one  ton  of  standard  structural  shapes.  It  shows  the  net 
selling  price  received  at  various  cities  and  reveals  that  steel 

6\ 


'  V 


11 
'1 


■■ 


I 


sold  fo  customers  near  Bethlehem  netted  the  mill  from  5  ta: 
20  per  cent  more  than  the  selling  price  at  various  easternl 
and  midwestern  cities.  It  also  shows  the  net  selling  prices 
after  adding  the  "Plus"  and  deducting  the  actual  freight 
paid. 

Bethlehem* s  Prices 

Thus  it  is  shown  that  a  ton  of  seel  shipped  to  Pittsburgh 
nets  the  Bethlehem  mill  25  per  cent  less  than  the  price  of  a 
similar  ton  of  steel  at  Bethlehem,  while  at  points,  west  of 
Pittsburgh  the  net  price  averages  about  20  per  cent  less  than 
the  price  at  Bethlehem.    The  table  follow^:  ' 


Shipped  Plus 
To                          Added 

Bethlehem,  Pa.  ....,»$  7.00 

New  York,  N.  Y... ..  7.60 

Philadelphia,  Pa.  ....  7.00 

Baltimore,  Md 6.70 

Richmond,  Va.   ......  8.40 

Pittsburgh,.  Pa .00* 

Cleveland,    0 4.80 

Cincinnati,   O.    6.50 

Louisville,  Ky 7.40 

Indianapolis,  Ind 6.90 

Detroit,   Mich 6.50 

Chicago,  111 , , .  7.60 

St.   Louis,   Mo.. 9.50 

Milwaukee,  Wis 8.30 

Minneapolis,  Minn.  ..  13.20 


f 

Actual 

Net  Price 

belivered 

Freight 

of 

Price 

Paid 

Shipment 

$57.00 

%    .00 

$57.00 

57.60 

3.20 

54.4Q 

57.00 

2.90 

54.10 

56.70 

4.20 

52.50 

58.40 

6.30 

52.10 

50.00 

7.00 

43.00 

54.80 

8.50 

46.30 

56,50 

10.60 

45.90 

57.40 

12.20 

45.20 

56.90 

11.^0 

45.60 

56.50 

9.40 

47.10 

57.60 

12.20 

45.40 

59.50 

15.30 

44.20 

58.30 

12.20 

46.10 

63.20 

16.30 

46.90 

II I 


Lackawanna's  Prices 

Relatively^  the  Same  conditions  hold  true  of  Buffalo,  where 
the  great  Lackawanna  mill  is  located.  Under  *Tittsburgh 
Plus,"  the  Lackawanna  mill  also  netted  a  higher  price  for 
its  steel  from  fabricators  located  in  Buffalo  and  nearby  or 
natural  territory,  than  it  did  when  it  shipped  into  the  norma 
territory  of  Pittsburgh  and  western  mills,  as  is  shown  m 
the  following  table: 


Shipped 
To 


♦ . . 


Plus 
.,.$5.90 


Delivered 
Price 

$55.90 
55.90 
56.30 
57.60 


Actual 

Freight 

Paid 

$  .00 
2.50 
3.90 
4.80 


Net  to 
MiH 

$55.90 
53.40 
52.40 
52.60 


Buffalo,  N.  Y. 

Rochester,  N.  Y 5.90 

Syracuse,  N.  Y. 6.30 

Schcncrtady,    N.   Y.....  7.60 
{Htvf  England  Common 

Points)     8.10          58.10          7.30          50.80 

Erie,  Pa.   4.90          54.90          3.30          51.60 

Pittsburgh,   Pa .00           50.00           5.90          40.10 

Cleveland,  O. 4.80          54:80          5.50          49.3d 

Detroit,  Mich 6.504-       56.50          5.90          50.60        i 

Chicago,  III, 7.60           57.60          .7^60  .        50.00 

It  is  obvious,  therefore,  that  Philadelphia  derives  no 
benefit  from*  the  great  mills  of  the  Bethlehem  company, 
nearby;  Baltimore  industry  derives  no  benefit  from  the  great 
niill  at  Sparrow's  Point,  only  a  short  distance  away;  Buffalo 
derives  no  benefit  from  the. mill  of  the  Lackawanna  com-^ 
pany,  on  its  outskirts;  and  New*  York  cities  near  Buffalo  are 
also  deprived  of  their  rightful  advantages  from  the  location 
lof  the  Lackawanna  mill. 

The  production  costs  of  these  mills  are  said  to  be  low,  and 
readily  Comparable  with   those  of  Pittsburgh.     Yet,   with^ 

52 


I 


) 


'^Pittsburgh  Plus"  in  effect,  the  east  obtains  no  benefit  from 
this  economical  production,  the  sole  advantage  going  to  the 
mills  in  the  form  of  unearned  profits. 

How  East  Pays  Tribute 

As  indicating  how  the  entire  east  is  under  tribute  to 
"Pittsburgh  Plus,"  the  following  table  is  interesting;  Com- 
parison of  freight  rates  from  other  mills  with  the  rate  from 
Pittsburgh  to  the  various  eastern  industrial  centers  given  will 
show  the  amount  of  the  exaction  to  which  they  are  subjected. 

The  table  shows  the  June,    1922,  freight  rates  on  one 

ton  of   finished   steel   from   various  steel   mills   to   eastern 

industrial  centers.    Present  rates  are  10  per  cent  lower  than 

those   tabulated,  which  makes  a  slight  but  not   important 

difference.  • 

PENNSYLVANIA  POINTS 

To  To  To  To 

From  Philadelphia  Scranton    Pittsburgh     Erie 

Pittsburgh,   Pa $7.20  $7.00  ....  $4.90 

Bethlehem,   Pa 2.90  2.90  $7.00            

Reading,   Pa. 2.50  3.90  7.00            

Lebanon,  Pa 2.90  4.20  7.00            

Steelton,  Pa 3.20  4.20  6.40            

Sparrow's  Point,  Md...  3.20  4.20  6.60            

Johnstown,   Pa 6.60  6.60  4.20            

Buffalo,  N.  Y 7.00  7.00  5.90  3.30 

NEW  YORK  POINTS 

To  To  To  To 

From                         New  York  Rochester  Syracuse  Schenectady 

Pittsburgh,    Pa $7.60  $5.90  $6.30  $7.60 

Buffalo,  N.  Y 7.00  2.50  3.90  4.80 

Bethlehem,  Pa 3.20  5.00  5.00  5.00 

Sparrow's  Point,  Md. ..  4.20  5.00  5.00  7.10 

Johnstown,   Pa 7.10  .      6.00  7.10  5.00 

Steelton,  Pa 4.20  5.00  5.00  5.00 

Lebanon,   Pa 4.20  5.00  5.00  5.00 

Reading,   Pa. 4.20  5.00  5.00  5.00 

NEW  ENGLAND  POINTS 

To  Portland,  Me.;  Rutland,  Vt. ;  Manchester,  N.  H. ;  Bos- 
ton, Mass.;  New  Haven,  Conn.,  and  Providence,  R.  I. 

From  Pittsburgh .$8.10 

From  Bethlehem,  Steelton,  Lebanon,  Reading  and  Spar- 
row's Point 5.70 

From  Buffalo 7.30 

From  Johnstown  7.80 

The  ultimate  consumer  of  the  east  is  compelled  to  pay 
the  higher  prices — equally  with  the  consumer  of  the  west — 
which  the  ^'protection"  arranged  by  the  steel  mills  through 
the  "Pittsburgh  Plus"  device  imposes.  ^ 

Wastage 

Another  advantage  which  the  Pittsburgh  manufacturer 
has  over  his  competitors  in  certain  branches  of  the  steel 
industry  is  in  the  wastage  involved  in  the  manufacturing 
process. 

In  drop  forgings,  screw  machine  products  and  a  number  of 
other  similar  products,  this  wastage  is  an  important  item.  It 
runs  from  10  to  65  per  cent  of  the  total  amount  of  steel  used. 
A  fair  average  would  be  about  25  per  cent. 

To  produce  1,500  pounds  of  finished  steel  products,  the 
western  manufacturer  must  purchase  a  ton  of  steel.     He 

.  53 


jiSJM 


lust  pay  the  mythical  freight  on  that  ton,  while  his  Pitts- 

rgh  competitor  pays  only  the  actual  freight  upon  the  UOO 

tunds  of  finished  product.  The  difference  constitutes  the 
landicap  under  which  the  western  manufacturer  labors  in 
lis  own  home  city,  and  this  handicap  is  increased  if  he  ships 

itward. 

The  handicap  in  this  variety  of  steel  products  is  greater 
than  in  many  others  because  of  the  small  bulk  of  the  articles 
produced.    They  do  not  require  large  quantities  of  steel  and 

irefore  manufacturers  usually  buy  their  steel  in  less  than 

(rload  lots.     The  difference  at  Chicago,  therefore,  instead 

$6.80  per  ton,  which  is  the  carload  freight  rate  from 

iVtsburgh,  is  $9.80  per  ton,  which  is  the  less  than  carload 

freight  rate. 

The  Pittsburgh  manufacturer,  delivering  at  Detroit, 
•which  is  the  great  market  lor  this  class  of  steel  goods,  pay^ 
only  the  actu'al  freight  charge  from  Pittsburgh'  which  is 
$3.60  per  ton,  and  he  pays  only  $2.70  on  the  1,500  pounds 
of  finished  product  obtained  from  each  ton  of  ;aw  sieel  he 
uses.  The  Chicago  man  first  pays  $6.80  per  ton  of  mythical 
freight  from  Pittsburgh  on  his  raw  steel— bought  at  a 
Chicago  miU-and  then  pays  the  actual  freight  of  $2.40  to 
Detroit  on  the  1,500  pounds  of  finished  product.  That  is, 
to  lay  down  1,500  pounds  of  finished  product  in  Detroit, 
the  Chicago  manufacturer  must  pay  a  freight  charge-earned 
and  unearned — of  $9.20,  while  the  Pittsburgh  manufacture 
pays  only  $2.70. 

This  computation  is  on  the  carload  freight  rate.  On  the 
less  than  carload  rate  there  is  an  increase  of  approximately 
40  per  cent,  and  this  adds  just  that  much  to  the  Chicago 
manufacturer's  handicap.  But  it  does  not  stop  there.  The 
wastage  is  sold  as  "scrap,"  and  this  is  sold  "Pittsburgh 
Minus,"  that  is,  the  freight  from  Pittsburgh  is  deducted 
from  the  price.  The  result  is  that  the  Pittsburgh  manu- 
facturer gets  about  $4  per  ton  more  for  his  scrap  than  the 
Chicago  manufacturer. 

Manufacturers  at  other  points — east  and  west,  south  and 
north — are  affected  in  precisely  the  same  manner. 

The  Jobbers'  Interest 

There  is  one  branch  of  the  steel  industry  in  addition  to 
the  mills  which  heartily  favors  "Pittsburgh  Plus."  This 
consists  of  the  "jobbers,"  or  those  merchants  who  carry 
.stocks  of  steel  and  sell  mainly  to  the  smaller  manufacturers. 
'  The  jobbers  buy  their  steel  in  carload  lots  and  stock  it  in 
their  warehouses.  They  sell  it  mainly  in  less  than  carload 
lots.  They  pay  "Pittsburgh  Plus"  at  the  rate  of  $6.80  per 
ton  at  Chicago  for  their  purchases,  and  when  they  sell  they 
charge  the  less  than  carload  freight  rate  from  Pittsburgh  to 
Chicago,  or  $9.80  per  ton,  a  net  unearned  profit  of  $3 
per  ton. 

Crass  Hauls 

The  Jones  &  Laughlin  Corporation  insists  that  if  Chicago 
is  made  a  basing  point  "the  railroads  such  as  the  New  York 
Central  and  the  Pennsylvania  will  lose  large  revenues  by 
reason  of  lessened  traffic,  or  freight  rates  will  have  to  be 
materially  reduced  in  order  to  give  the  mills  in  the  Pitts- 

$4 


•» 


H 


i 


if 


burgh  district  an  opporunity  to  compete  for  the  business  in 
the  Chicago  district  and  in  the  territory  west,  northwest  and 
southwest  of  Chicago ;  and  it  follows,  as  a  matter  of  course, 
that  if  multiple  basing  points  are  established  other  railroads 
will  be  similarly  affected ;  they  will  lose  traffic  unless-  freight 
rates  are  reduced." 

This  is  an  earnest  plea  on  behalf  of  the  railroads,  but  the 
only  meaning  which  can  be  attached  to  it  is  that  if  the 
"Pittsburgh  Plus"  practice  is  abolished  purchasers  of  steel 
will  buy  from  the  mill  nearest  them  and  consequently  reduce 
the  amount  of  hauling  to  be  done. 

The  Jones  &  Laughlin  Corporation  insists  that  the  only 
way  to  remedy  this  situation  would  be  rate  reduction,  which, 
it  contends,  would  also  work  to  the  injury  of  the  railroads. 
This  indicates  that  Pittsburgh  interests,  now  so  eagerly 
mindful  of  the  railroads,  would,  with  "Pittsburgh  Plus" 
abolished,  demand  a  lowering  of  freight  rates  so  that  they 
might  get  into  other  markets.  They  are  now  perfectly 
content  with  existing  high  freight  rates  which  prevent  in- 
dustries located  elsewhere  from  competing  with  them  in 
their  own  normal  markets  but,  with  "Pittsburgh  Plus"  in 
effect,  permit  them  to  compete  everywhere. 

With  Pittsburgh  enabled  to  compete  throughout  the 
country,  and  with  western  mills  shipping  to  the  east,  as  is 
done,  present  conditions  promote  a  vast  unnecessary  haulage 
of  steel. 

There  is  westward  shipping  from  Pittsburgh  and  the  eastA 
ern  mills  ,•  there  is  eastward  shipping  from  the  western  mills ;  \ 
there  is  eastward  shipping  from  Pittsburgh  to  eastern  fabri- 
cators; in  fact,  there  is  a  veritable  maze  of  criss-crossing  in 
shipments  which  is  largely  unnecessary. 

True,  the  railroads  might  suffer  somewhat  by  the  abolitionF 
of  "Pittsburgh  Plus" — at  least  temporarily — until  the  inevit-l 
able  readjustment  would  follow.  But  how  about  the  conJ 
sumer  ?  How  about  the  nation's  industry  as  a  whole  ?  Arq 
not  these  more  important  considerations  than  the  assurance! 
of  greater  revenue  to  steel  mills;  to  Pittsburgh  industry,  and! 
to  the  railroads?  It  is  a  short-sighted  view  which  will  place  al 
few  special  interests  above  the  interests  of  the  whole  country.  V 

No  Injury  to  Roads 

Besides,  it  is  more  than  doubtful  if  the  railroads  would 
really  suffer.  Annually  the  cry  of  shortage  of  cars  is  raised 
by  the  railroads  at  times  when  cars  are  acutely  needed  for 
crop  movement.  The  abolition  of  unnecessary  hauling  of 
steel  v^ould  unquestionably  release  a  vast  number  of  cars 
for  other  purposes.  This  would  not  injure  the  railroads, 
but  would  benefit  them  and  would  be  of  incalculable  benefit 
to  the  nation's  consumers  and  its  agriculture. 

In  addition,  the  general  diffusion  of  industry  and  its 
decentralization,  bound  to  follow  the  abolition  of  "Pitts- 
burgh Plus,"  would  unquestionably  promote  shorter  haul 
railroad  business,  which  should  at  least  offset  any  disadvan- 
tage to  the  railroads  due  to  the  loss  of  long  haul  business. 

The  great  transcontinental  roads  which  handle  steel  ship- 
ments out  of  the  Pittsburgh  district  might  suffer  some^jriiat, 
but  their  loss  would  be  the  gain  bf  smaller  and  weaker  roads 

55 


I 


■H 


doing  a  more  local  business,  and  this  would  be  healthy  for 
transportation  and  industry  generally. 

Whether  the  railroads  would  suffer  some  loss  of  revenue, 
however,  is  not  really  the  important  issue.  What  actually 
concerns  the  nation  is  whether  it  is  handling  its  industry 
and  transportation  to  the  best  possible  advantage. 

Water  Transportation 

It  is  rather  a  curious  commentary  upon  the  Jones  & 
Laughlin  Corporation's  solicitude  for  the  railroads  to  note 
its  attitude  with  reference  to  waterways. 

The  Jones  &  Laughlin  Corporation  is  an  earnest  advocate 
of  improved  interior  waterways,  especially  of  the  improve- 
ment of  the  Ohio  and  Mississippi  rivers.  In  1922  this 
company  spent  a  great  deal  of  money  in  advertisements 
throughout  the  middle  west  asking  support  for  appropria- 
tions for  improved  dockage  and  navigation  facilities  on  the 
Ohio  and  Mississippi.  It  advertised  the  economies  in  trans- 
portation costs  that  would  be  thus  effected.  But  these 
economies  certainly  would  be  at  the  expense  of  the  railroads, 
inasmuch  as  freight  carried  by  water  would  be  diverted  from 
the  rails.  However,  the  Jones  &  Laughlin  Corporation 
would  profit  therefrom  because  its  distribution  costs  would 
be  lowered,  but,  with  "Pittsburgh  Plus"  in  effect,  the  public 
would  reap  no  benefit. 

This  is  serious.  Millions — even  billions — of  dollars  have 
been,  are  being  and  are  planned  to  be  spent  upon  the  de- 
velopment of  interior  waterways,  but  the  public  expenditure 
of  funds  for  waterway  development  will  be  wasted,  so  far 
as  the  steel  industry  is  concerned,  unless  "Pittsburgh  Plus" 
is  abolished. 

This  was  strikingly  shown  in  1921  when  "Pittsburgh 
Plus"  was  removed  on  plates,  shapes  and  bars  in  the  Chicago 
market.  There  was  then  actual  sharp  competition  by  the 
mills  for  business.  In  the  west  what  business  there  was 
went  mainly  to  the  Chicago  mills,  because  they  could  deliver 
throughout  their  normal  trade  territory  at  a  less  price  than 
the  Pittsburgh  mills. 

Reason  for  Barge  Lines 

Thereupon,  Pittsburgh  steel  producers,  suddenly  awakened 
to  the  necessity  of  elRcient  distribution.  They  installed  their 
own  barge  lines  on  the  Ohio  and  Mississippi  rivers  and  ad- 
vertised widely  that  they  were  thereby  effecting  great  econo- 
mies from  which  their  customers  who  were  tributary  to 
these  rivers  would  benefit. 

When  the  economies  of  the  new  barge  lines  were  analyzed, 
however,  it  was  found  that  the  prices  made  by  the  Jones  & 
Laughlin  Corporation  and  other  Pittsburgh  producers  at 
Ohio  and  Mississippi  river  points  were  designed  almost 
exactly  to  meet  th^  competition  of  the  Chicago  mills.  That 
is,  the  prices  at  these  river  points  were  practically  the  same 
as  Chicago  prices  plus  the  actual  rail  freight  from  Chicago. 

With  the  complete  re-establishment  of  "Pittsburgh  Plus," 
however,  these  economies  to  customers  would  vanish  and  the 
full  rail  freight  from  Pittsburgh  would  be  charged  to  these 
river  points.  There  would  be  a  saving  from  more  efficient 
and  economical  distribution  which  water  transportation  af- 

S6 


f 


if 


fords,  but  this  saving  would  merely  be  reflected  in  added 
profits  and  would  go  into  the  coffers  of  the  steel  mills. 

Is  it  conceivable  that  the  nation  will  spend  these  vast  sums 
of  money,  the  sole  result  of  such  expenditure,  so  far  as  one 
of  the  leading  industries  of  the  country  is  concerned,  being 
that  steel  producers  would  benefit  in  pocket,  with  no  re- 
sultant benefit  to  the  millions  of  people  who  pay  for  the 
improvements  ? 

Agriculture 

As  a  class,  the  farmers  are  the  greatest  purchasers  'of  rolled 
steel  products,  and  consequently  the  greatest  contributors 
to  the  "Pittsburgh  Plus"  toll. 

On  June  26,  1922,  James  R.  Howard,  then  president  of 
the  American  Farm  Bureau  Federation,  testified  in  the  pend- 
ing case  that  the  annual  consumption  of  rolled  steel  on  the 
average  American  farm  is  in  excess  of  one  ton. 

The  following  table,  offered  by  Mr.  Howard,  shows  the 
principal  articles  used  on  the  average  farm,  the  amount  of 
steel  contained  in  each,  the  average  length  of  service,  the 
number  used  on  each  farm  and  the  annual  consumption  of 
rolled  steel  by  articles.  The  rolled  steel  is  figured  con- 
servatively in  every  case  and  is  from  15  to  20  per  cent 
Selow  the  actual  farm  consumption. 

Steel  Number      Annual 

Article  Used  Life         Used  Consumption 

Pounds      Years    on  Farm      Pounds 

Two-horse  wagon   . .' ^50  10  2      •  70 

Grain  binder    900  10  1  90 

Corn  binder 900  10  1  90 

Gang  plow   500  10  1  50 

Sulky  plow   SOO  10  2  60 

Disc  harrow   300  10  1  30 

Harrow   300  10  1  30 

Drill    450  10  1  45 

Cultivator .  450  10  2  90 

Hay  rake  350  10  1  35 

Feed  grinder 50  10  1  5 

Mower    2200  10  1  20 

Corn   sheller,   power......   600  10  1  60 

Tedder   400  10  1  40 

Ensilage  cutter   300  10        '       1  30 

Threshing   outfit    4000  10  1/5  80 

Gas  engine,  small 40  10  1  4 

Gas  engine,  large 180  10  1  18 

Automobile 1400  3  1  467 

Tractor    3000  4  1/30  25 

Manure  spreader 1000  10  1  100 

Cream   separator    200  10  1  20 

Wire  fence   5120  12  ..  427        * 

Staples    80  12  ..  7 

Nails    100  1  ..  100 

Windmill  and  tower 1100  10  1/5  22 

■I  r 

Total  annual  consumption,  pounds 2015 

The  number  of  farmers  in  the  eleven  leading  mid-western 
agricultural  states — Illinois,  Indiana,  Michigan,  Wisconsin, 
Minnesota,  Iowa,  Missouri,  North  Dakota,  South  Dakota, 
Nebraska  and  Kansas — is  1,925,^00  and  the  average  size 
farm  is  183  acres,  according  to- the  figures  of  the  Federal 
Census  Bureau. 

S7 


i 


Farmers  Pay  Millions 

Based  on  the  freight  rates  then  in  eflfect,  Mr.  Howard 
estimated  that  if  all  the  farm  implements  used  in  these 
eleven  states  had  been  made  in  Moline,  Illinois,  where  the 
"Pittsburgh  Plus"  charge  then  amounted  to  $6.50  per  ton, 
the  added  cost  due  to  "Pittsburgh  Plus"  would  have  been 
$12,705,000.  If  these  implements  had  been  made  in  Chi- 
cago, where  the  "Pittsburgh  Plus"  charge  was  then  $7.60 
per  ton,  the  added  cost  would  have  been  $14,630,000.  As 
there  has  been  a  freight  rate  reduction  of  10  per  cent  since 
that  time,  these  figures  should  be  correspondingly  reduced, 
making  the  present  Moline  toll  approximately  $11,435,000 
and  the  Chicago  toll  approximately  $13,070,000. 

Mr.  Howard  further  stated  that  while  no  definite  figures 
had  been  gathered  for  the  rest  of  the  country,  it  was  a  fair 
and  conservative  estimate  that  the  agricultural  implements 
used  in  the  other  states  would  be  valued  at  more  than  the 
aggregate  value  of  those  used  in  the  eleven  states  cited. 
This  would  mean  that  if  all  the  farm  implements  in  the 
country  were  made  at  Moline  or  any  other  point  where  the 
"Pittsburgh  Plus"  charge  was  approximately  the  same,  this 
charge  would  cost  the  farmers  of  the  country  not  less  than 
$25,000,000,  while  if  these  implements  had  been  made  at 
Chicago  or  any  point  where  the  "Pittsburgh  Plus"  charge 
was  approximately  the  same,  the  exaction  would  have  been 
increased  considerably. 

Implements  Cost  More 

Figures  submitted  in  the  pending  case  by  Deere  &  Com- 
pany, agricultural  implement  manufacturers  of  Moline,  Illi- 
nois, show  strikingly  the  extent  of  the  "Pittsburgh  Plus" 
charge  at  that  point  and  its  effect  in  increasing  the  cost  of 
farm  machinery.    These  figures  are  as  follows: 

Riding  cultivator $  1.23 

Mower    1.28 

Pise   harrow    1.89 

Corn  planter 1.93 

Sulky  rake 2.60 

•Grain  drill 3.06 

Gang  plow , 3.61 

Tractor  plow 6.28 

Corn  binder 6.88 

Grain  binder 6.98 

♦Tractor   19.80 

•  Grain  drills  are  made  at  Horicon,  Wis.,  and  tractors  at 
Waterloo,  Iowa.    Freight  is  computed  to  these  points. 

There  are  many  other  articles  made  of  rolled  steel  in  addi- 
tion to  agricultural  implements  which  are  used  on  the  farm. 
These  include  tools  of  various  kinds;  household  utensils, 
downspouts,  silo  bands,  automobiles  and  a  vast  variety  of 
other  items* 

It  is  in  evidence  that  this  charge,  which  is  added  to  the 
cost  of  production  by  all  of  the  agricultural  implement 
makers  and  all  other  manufacturers,  is  at  least  doubled  by 
the  time  it  reaches  the  farmer.  This  is  due  to  profits  of 
manufacturers,  overhead  charges,  profits  of  middlemen,  etc.. 
Therefore,  it  is  a  fair  deduction  that  the  ultimate  direct  cost 
of  "Pittsburgh  Plus"  to  the  farmers  of  the  country  is  be- 

3o  t 


RATES) 

From 

From 

From 

Chicago 

Duluth 

Pueblo 

$1.35 

$1.13 

$0.97 

1.35 

1.13 

.97 

1.35 

1.13 

.97 

1.35 

1.13 

.97 

1.35 

1.13 

.97 

1.35 

1.13 

.97 

1.35 

1.13 

.97 

1.35 

1.13 

.97 

1.35 

1.19 

.55!^ 

.93 

.93 

.18J4 

1.12 

• .  •  • 

.69 

.77y2 

.... 

.69J4 

.76}^ 

.... 

.69J^ 

.86 

.92 

.67 

Aiy2 

.41 J4 

My2 

.45 

.57 

.36 

.27J4 

.15^^ 

• 

.08 

.30J4 

.27^ 

.^m 

.2\y2 

.36 

tween  $50,000,000  and  $75,000,000  a  year,  and  probabM 
nearer  the  latter  than  the  former  figure.  | 

Wire  and  Nails 

The  farmer  is  perhaps  the  largest  user  of  wire  and  wire 
nails.  *Tittsburgh  Plus''  appreciably  increases  their  cost  to 
him.     This  applies  in  all  parts  of  the  country. 

The  following  table  shows  a  comparison  of  freight  rates 
from  Pittsburgh,  Chicago,  Duluth  and  Pueblo  to  western 
cities. 

The  great  mill  of  the  Colorado  Fuel  and  Iron  Company, 
at  Pueblo,  Colo.,  has  an  annual  producing  capacity  of 
300,000  tons  of  plain  wire  and  2,500,000  kegs  of  wire  nails, 
and  can  no  doubt  supply  the  demand  of  the  entire  Rocky 
Mountain  territory,  but  nevertheless,  in  that  district  'Titts- 
burgh  Plus'*  increases  the  selling  price  53  cents  on  a  keg  of 
nails  or  a  bundle  of  wire  of  100  pounds. 

When  a  Denver,   Colo.,   consumer   buys  a  keg  of  nailslj 
shipped  from  Pueblo,  he  pays  an  unearned  freight  rate  ofl 
$1,085^  P^r  teg,  for  the  rate  from  Pittsburgh  to  Denver  isl 
$1.26  per  hundredweight,  while  the  rate  from  Pueblo  is  onlyf 
183^  cents  per  hundredweight. 

At  Minneapolis  the  difference  in  freight  to  Pittsburgh 
and  Duluth  is  44J^  cents,  which  is  the  unearned  freight  a 
Minneapolis  purchaser  of  nails  or  wire  would  pay  on  nails 
shipped  from  Duluth. 

The  unearned  freight  at  any  point  can  be  ascertained  by 
deducting  the  actual  freight  from  the  nearest  nail  mill  from 
the  rate  from  Pittsburgh  in  the  following  table: 

CAR  LOAD  FREIGHT  RATES  PER  HUNDRED  FOUNDS 

(PRESENT 

From 
To  Pittsburgh 

Spokane,  Wash $1.50 

Portland,  Ore 1.50 

San    Francisco,   Cal..    1.50 

Phoenix,    Ariz 1.50 

Reno,   Nev 1.50 

Boise,  Idaho   1.50 

Helena,   Mont.    .....   1.50 

Guernsey,  Wyo 1.50 

Salt  Lake  City,  Utah  1.50 

Denver,    Colo 1.27 

Albuquerque,  N.  M..    1.47 

Dallas,  Tex 97J^ 

Oklahoma  City,  Okla.     .97j4 

Wichita,  Kan 1.11 

Omaha,   Neb 73]^ 

Aberdeen,   S.   D 76 

Fargo,   N.   D 96 

Minneapolis,    Minn..     .60 

Milwaukee,    Wis 37 

Waterloo,   Iowa 55 

St.  Louis,  Mo 43 

The  southern  farmer  also  suffers  from  increased  prices 
which  he  pays  for  wire  and  nails,  despite  the  fact  that  Birm- 
ingham is  a  large  and  low-cost  producer.  However,  the 
Birmingham  mills  reap  a  huge  profit  from  shipments  of  wire 
nails  and  other  steel  products  to  the  Pacific  coast. 

.59 


I 


1/ 


■r' 


In  the  Daily  Metal  Trade,  one  of  the  leading  iron  and 
steel  trade  papers,  of  December  28,  1922,  appeared  the 
following  item : 

Birmingham,  Ala.,  Dec.  27. — Birmingham  and 
Gadsden  wire  drawing  mills  save  $17,000  monthly 
in  freight  on  the  1,000  tons  of  wire  nails  and  other 
steel  products  which  have  been  shipped  by  them  to 
the  Pacific  coast  each  month  for  some  time  through 
the  port  of  Mobile. 

TTie  saving  to  shippers  by  routing  these  products 
through  Mobile  is  said  to  be  $17  a  ton.  Where  the 
products  are  shipped  to  Mobile  by  the  Warrior 
river,  as  is  frequently  done,  there  is  an  additional 
saving  of  50  to  60  cents  a  ton. 

The  most  recent  steel  cargo  out  of  Mobile,  the 
second  this  month,  carried  more  than  1,000  tons  of 
wire  mill  products  to  Portland,  Seattle,  San  Fran- 
cisco arid  other  western  points. 

The  Pacific  coast  reaped  no  advantage  from  these  ship- 
ments, as  ''Pittsburgh  Plus"  was  charged  on  them.  The 
south  reaped  no  advantage.  And  there  was  no  economic 
advantage  to  consumers  of  the  nation  due  to  cheap  water 
transportation.  The  sole  advantage  went  to  the  U.  S.  Steel 
Corporation. 

The  American  Steel  and  Wire  Company,  a  subsidiary  of 
the  U.  S.  Steel  Corporation,  obtained  an  unearned  profit  of 
$17,000  on  this  one  shipment  of  1,000  tons.  At  the  rate  of 
only  one  such  shipment  per  month,  this  company's  annual 
unearned  profit  from  this  one  item,  from  only  one  of  its 
mills,  would  be  $204,000  per  year. 

Farmer  Sells  *' Market  Minus^ 

Another  complaint  of  the  farmer  against  "Pittsburgh 
Plus"  is  that  on  the  economic  side  it  apparently  works  in  a 
different  manner  than  the  marketing  of  farm  products.  He 
ciimplains  that  because  of  "Pittsburgh  Plus"  the  things  he 
buys  cost  him  more,  while  his  product  is  sold  "Market 
Minus,"  and  he  reaps  no  benefit  from  the  fact  that  he  is 
himself  often  a  surplus  producer. 

The  farmer  cannot  "stabilize"  his  business  as  the  steel 
mills  do.  Steel  is  largely  made  on  order,  and  the  suppply 
can  be  regulated  to  meet  the  demand.  Gi^in  is  practically 
sold  at  auction.  The  supply  cannot  be  regulated  at  plant- 
ing time  because  the  demand  is  an  unknown  quantity,  and 
a  still  greater  unknown  quantity  is  the  yield  which  will  be 
produced  in  any  one  year. 

Steel  is  sold  by  the  mills  subject  to  delay  by  strikes,  acci- 
dents or  other  causes  over  which  they  have  no  control. 
Grain  is  not  and  cannot  be  sold  that  way. 

In  the  case  of  wheat,  for  illustration,  the  point  of  surplus 
supply  is  probably  in  Kansas,  but  Kansas,  gains  nothing  from 
this,  as  the  actual  freight  to  market  is  deducted  from  the 
price.  That  is  what -the  farmer  means  by  saying  that  his 
product  is  sold  "Market  Minus,"  while  for  steel  he  must  pay 
"Pittsburgh  Plus." 

Besides,  the  price  of  grain  is  constantly  changing,  while 

60 


^% 


II    # 


the  price  of  steel  is  more  constant,  frequently  not  changing 
for  months  at  a  time. 

No  Control  of  Farm  Products 

There  can  be  no  such  device  as  "Pittsburgh  Plus"  upon 
farm  products,  because  these  are  not  subject  to  close  con-j 
trol.  There  are  over  six  million  farmers  in  the  Unite< 
States  and  less  than  two  hundred  producers  of  rolled  steel, 
of  which  one  concern,  the  United  States  Steel  Corporation,^ 
produces  about  45  per  cent  of  the  entire  output. 

Practically  every  farmers'  organization  in  the  country,! 
following  the  lead  of  the  American  Farm  Bureau  Federation,] 
is  up  in  arms  against  the  "Pittsburgh  Plus"  practice. 

The  American  Farm  Bureau  Federation  early  took  a 
stand  against  this  practice  and  was  largely  instrumental  in 
bringing  about  the  issuance  of  a  complaint  by  the  Federal 
Trade  Commission  through  the  aid  afforded  in  the  proceed- 
ings before  that  body. 

Another  of  the  farmers*  complaints  against  "Pittsburgh 
Plus"  is  because  this  practice  operates  to  centralize  the  steel 
industry  in  and  about  Pittsburgh  and  deprives  other  locali- 
ties of  their  industrial  advantages.  This  deprives  farmers 
near  struggling  industrial  centers  which  have  potential  pos- 
sibilities for  steel  manufacturing  of  the  advantages  of  dT 
nearby  home  market.  This  is  important,  as  such  home  mar- 
kets tend  to  stabilize  the  prices  of  farm  products  and  render 
neighboring  farmers  less  dependent  upon  distant  markets. 

This  is  a  form  of  "stabilization"  with  which  the  farmer  is 
quite  familiar  and  he  resents  being  deprived  of  it. 

Roads,  Public  Buildings,  Taxes 

Another  item  in  which  the  farmer  is  acutely  interested  is 
the  cost  of  hard  roads,  which  is  increased  notably  by  "Pitts- 
burgh Plus."  What  this  increased  cost  amounts  to  through- 
out the  country  it  is  almost  impossible  to  compute,  but  the 
American  Farm  Bureau  Federation  compiled  figures  for  ten 
states  in  1921  which  shed  an  illuminating  light  on  the 
subject. 

In  that  year  S.  E.  Bradt,  then  state  highway  engineer  of 
Illinois,  estimated  that  16J^  tons  of  steel  are  required  on 
the  average  for  each  mile  of  hard  roads  constructed  in  Illi- 
nois. This  steel  is  used  for  reinforcing  rods,  bridges  and 
culverts.  On  this  basis,  the  hard  roads  program  of  the 
nation  would  be  taxed  many  millions  of  dollars  by  "Pitts- 
burgh Plus."  Early  in  1921  the  American  Farm  Bureau 
Federation  sent  out  a  bulletin,  containing  the  figures  it  had 
gathered.     This  bulletin  follows: 


ff 


a 


Pittsburgh  Ptus^  and  State  Roads 

The  Department  of  Transportation  presents  some  reveal- 
ing figures  as  to  the  cost  of  'Tittsburgh  Plus"  in  the  build- 
ing of  roads.  State  highway  engineers  were  requested  to 
submit  the  estimates  of  the  amount  of  steel  to  be  used  on 
roads  to  be  built  within  the  next  four  years.  The  excess 
cost  of  shipping  steel  from  Pittsburgh  to  typical  points  in 
each  state  as  compared  to  the  cost  from  the  nearest  steel 
mill  was  set  down  as  the  "average  cost  of  Tittsburgh  Plus.*  " 
The  figures  show  that  in  ten  states  the  extra  toll  paid  to 


' ■    - 


■Aa. 


'Tittsburgh  Plus"  during  the  next  four  years  on  roads  alone 
will  run  nearly  $2,000,000.  Mostly  farmers'  taxes  will  pay 
this.    The  figures  are  as  follows: 

Av.  Cost  of 
'^Pittsburgh 
Amount  of  Plus" 

State  Steel  Used  Per  Ton  Total 

Illinois 4,000  miles  $  7.00  $504,000 

(163/2  tons  per  mi.) 

Alabama 12,000  tons  10.00  120,000 

Montana 900  tons  7.00  6,300 

(Amt.  for  bridges  unknown) 

Nevada  1,450  tons  7.00  10,150 

Arizona    1,200  tons  7.00  8,400 

Michigan    .' 16,000  tons  2.00  32,000 

Washington   28,000  tons  7.00  196,000 

Wisconsin    50,000  tons  7.60  380,000 

Arkansas    . .  .25,000-30,000  tons  7.00  200,000 

Minnesota    ...60,000  tons  7.60  456,000 

Direct  cost  for  10  states;  260,000  tons $1,912,850 

The  farmer  is  also  interested  in  the  cost  of  public  build- 
ings, in  which  the  "Pittsburgh  Plus"  charge  runs  into  huge 
figures  annually. 

Swell  Tax  Burdens 

All  of  these  items  go  to  swell  the  tax  burdens  of  the  farmer, 
but  they  also  go  to  swell  the  tax  burdens  of  all  other  con- 
sumers and  taxpayers,  who  are,  therefore,  all  equally  inter- 
ested in  the  effect  of  "Pittsburgh  Plus"  in  increasing 
caxaLioo. 

However,  even  more  than  in  taxation,  the  ultimate  con- , 
sumer  is  interested  in  commodity  prices,   and  there   is  no 
question  that  "Pittsburgh  Plus"  operates  to  keep  these  on  a 
higher  level,  as  was  admitted  by  Judge  Gary. 

It  is  because  of  the  influence  of  "Pittsburgh  Plus"  in  keep- 
ing commodity  prices  at  an  unduly  high  level  that  numerous 
organizations,  led  by  the  National  Association  of  Purchasing 
Agents,  have  taken  an  earnest  interest  in  the  controversy. 

Price  Fixing  and  Detection 

One  advantage  "Pittsburgh  Plus"  unquestionably  has  for 
the  mills — ^but  upon  which  they  lay  little  stress — is  that  it 
renders  the  quoting  of  prices  a  somewhat  simpler  matter, 
and  that  it  is  quite  effective  in  bringing  about  detection  and 
therefore  prevention  of  price-cutting.  This  is  shown  by  an 
article  in  the  Manufacturers  Record ^  of  Baltimore,  "The 
Real  Reason  for  Steel  Basing  Point  at  Pittsburgh  Not  Al- 
ways Stated."  This  article,  friendly  to  the  mills,  sets  forth 
the  advantage  to  them  from  this  point  of  view  quite  accu- 
rately in  the  following  words: 

"Usually  a  steel  producer  is  eager  to  book  orders  and 
would  shave  prices  a  trifle  if  there  were  no  danger  in  doing 
so.  But,  with  the  Pittsburgh  basing,  a  cut  price  is  clearly 
marked,  and  the  whole  trade,  buyers  and  sellers  alike,  re-  -^ 
gard  the  cut  as  being  a  cut  of  the  Pittsburgh  price;  in  other 
words,  a  cut  of  the  whole  market,  so  the  tendency  is  for 
one  cut  to  lead  to  another.  Fully  realizing  this,  the  indi- 
vidual producer  is  usually  opposed  to  making  a  single 
price  cut,  recognizing  the  possibility  of  its  reacting  upon 
him  by  establishing  a  lower  level  for  the  entire  market 
throughout  the  country." 

62 


i 


That  is  all  very  well  from  the  standpoint  of  the  steel  pro- 
ducer, but  how  about  the  law  and  how  about  the  consumer? 
The  article  shows  clearly  enough  that  the  effect  of  "Pitts- 
burgh Plus"  is  to  restrict  competition,  for  the  so-called  "shad- 
ing" of  prices  is  really  the  result  of  competition  in  an  unre- 
stricted market  and  there  is  little  doubt  that  the  Manufac- 
turers  Record  is  correct  in  stating  that  the  tendency  of  this 
character  of  competition  is  to  bring  about  a  lower  price 
level. 

But  that  is  the  purpose  of  the  law— to  bring  about  lower 

prices  for  commodities  when  non-competitive  conditions  set 

them  upon  a  level  higher  than  actual  trade  conditions  war- 

'  rant.     If  the  conclusions  of  the  Manufacturers  Record  are 

correct,  then  "Pittsburgh  Plus"  destroys  competition. 

If  this  be  true,  it  is  contrary  both  to  the  Clayton  Act  and 
the  Federal  Trade  Commission  Act,  which  are  designed  to 
foster  competition  and  prevent  unfair  trade  practices.  It  is 
idle  to  discuss  the  desirability  of  these  laws.  They  are  upon 
the  statute  books  and  so  long  as  they  remain  there  are  meant 
to  be  obeyed. 

Besides,  the  consumer  is  by  no  means  so  closely  concerned 
in  rendering  the  detection  of  price-cutting  easy  as  he  is  in 
obtaining  the  commodities  he  buys  at  a  reasonable  price. 

Chicago  a  Basing  Point 

As  has  already  been  noted,  there  were  only  a  fe^  periods 
since  1901  during  which  "Pittsburgh  Plus"  was  not  in  com- 
plete effect.  One  of  these  was  from  September,  1917,  to 
July,  1918.  That  was  interesting,  inasmuch  as  it  had  no 
reference  whatever  to  any  of  the  usual  reasons  given  as 
accounting  for  a  temporary  cessation  of  the  "Pittsburgh 
Plus"  practice.  This  exception  was  due  to  an  order  of  the 
War  Industries  Board  establishing  Chicago  as  a  basing  point 
for  steel  on  a  parity  with  Pittsburgh. 

During  1917  the  nation  was  in  a  frenzy  of  effort  for  the 
production  of  war  material.  The  Pittsburgh  district  and 
the  east  were  doing  their  share  in  supplying  the  country's 
requirements,  but  the  west  was  unable  to  do  so  because  of 
"Pittsburgh  Plus." 

Several  departments  of  the  government,  notably  the  war 
and  navy  departments  and  the  controller,  also  objected  to 
the  "Pittsburgh  Plus"  charge  on  materials  furnished. 

To  stimulate  western  production  the  War  Industries 
Board,  in  September,  1917,  ordered  the  removal  of  "Pitts- 
burgh Plus"  in  the  Chicago  market  and  the  establishment  of 
Chicago  as  a  basing  point  on  steel  plates,  shapes  and  bars  on 
a  parity  with  Pittsburgh.  The  effect  of  this  was  felt  almost 
immediately.  Western  manufacturers  at  once  began  to  con- 
tribute their  share  of  the  nation's  war  material.  Also,  they 
hailed  the  enforced  abolition  of  "Pittsburgh  Plus"  as  a  har- 
binger of  better  conditions  to  come,  as  it  was  intimated  that 
the  change  in  price-basing  conditions,  would  be  permanent. 

West  Becomes  Active 

Thereupon,  western  industry  became  equally  active  with 
that  of  the  east.  Shortly  thereafter,  when  government  con- 
tracts went  largely  to  a  "cost  plus"  basis,  "Pittsburgh  Plus" 


J 


4 

* 


/ 


made  little  difference.  Even  those  manufacturers  who  were 
not  supplying  war  materials  reaped  the  benefit  of  the  higher 
price  level  then  existing. 

As  a  result  of  this  action  of  the  War  Industries  Board, 
and  of  the  implied  understanding  that  the  condition  existing 
because  of  it  would  be  permanent,  many  western  manufac- 
turers made  large  plant  additions. 

In  July,  1918,  the  War  Industries  Board  restored  "Pitts- 
burgh  Plus"  and  made  Pittsburgh  the  sole  steel  basing  point. 
No  one  appears  to  know  what  influence  was  brought  to  bear 
to  have  this  done.  A  vigorous  protest  was  made  by  western 
manufacturers,  without  result.  But  with  the  close  of  the 
war  the  situation  became  decidedly  serious  to  western  manu- 
facturers, especially  to  those  who  had  invested  heavily  in 
plant  additions. 

With  the  stimulus  of  war  trade  removed,  with  prices  seek- 
ing lower  levels  and  with  slackened  business,  these  western 
manufacturers  faced  enormous  losses  because,  ^ith  the  "Pitts- 
burgh Plus"  differential  restored  and  advanced  with  increased 
freight  rates  from  $3.78  to  $5.40  at  Chicago,  they  were  un- 
able to  compete  with  Pittsburgh  manufacturers. 

IP 

Western  Manufucturers  Organize 

This  action  of  the  War  Industries  Board  is  important  in 
the  consideration  of  this  controversy  since,  because  of  it,  the 
western  manufacturers,  rendered  desperate,  began  their  or- 
ganized effort  to  bring  about  the  abolition  of  "Pittsburgh 
Plus." 

An  interesting  sidelight  on  the  order  of  the  War  Industries 
Board  is  afforded  by  the  fact  that  prior  to  1918,  nuts,  bolts 
and  rivets  were  not  sold  on  the"  "Pittsburgh  Plus"  basis. 
With  the  restoration  of  "Pittsburgh  Plus"  in  July,  1918, 
however,  these  three  articles  were  sold  "Pittsburgh  Plus," 
and  continued  to  be  sold  thus  until  1923,  when  the  "Pitt*; 
burgh  Plus"  charge  on  them  was  removed  by  the  mills. 

There  was  no  change  in  relative  conditions  either  prior  to 
1917  or  subsequent  thereto  which  would  seem  to  warrant 
this  action  with  reference  to  nuts,  bolts  and  rivets. 

Also,  during  all  the  periods  when  "Pittsburgh  Plus"  was 
temporarily  abandoned  on  plates,  shapes  and  bars,  it  remained 
in  full  force  on  wire,  nails,  sheets  and  other  products  on 
which  control  is  more  closely  held.  This  indicates  that  the 
device  is  well  within  the  control  of  the  mills. 

History  of  the  Case 

The  abolition  by  the  War  Industries  Board  of  Chicago 
as  a  steel  basing  point  wrought  havoc  with  western  in- 
dustry. After  numerous  individual  protests  against  this 
change,  an  orgjimEed  effort  to  end  "Pittsburgh  Plus"  actually 
started  in  January,  1919,  with  the  formation  of  an  organ- 
ization known  as  the  "Western  Association  of  Rolled  Steel 
Consumers."  This  consisted  of  a  number  of  western  manu- 
facturers of  articles  made  from  rolled  steel  who  organized 
for  the  sole  purpose  of  bringing  about  the  abolition  of  "Pitts- 
burgh  Plus." 

With  the  formation  of  the  Western  Association  of  Rolled 
Steel  Consumers,  the  "Pittsburgh  Plus"  controversy  rapidly 

64  f 


111 


became  acute.  Many  manufacturers  and  several  communi- 
ties, notably  Duluth,  had  previously  objected  to  the  system 
and  had  sought  to  bring  about  its  removal,  but  these  were 
sporadic  efforts  and  were  utterly  unavailing. 

The  first  action  of  the  new  association  was  to  seek  to 
bring  about  the  removal  of  "Pittsburgh  Plus"  through 
amicable  negotiations  with  the  steel  mills.  The  association 
employed  an  eminent  attorney,  the  late  John  S.  Miller  of 
Chicago,  who  had  much  correspondence  with  Judge  Gary 
on  this  subject.  Finally,  in  July,  1219,  Judge  Gary  him-  /u 
self  suggested  that  the  matter  be  reterred  to  the  l^ederal 
Trade  Commission  for  adjudication.  This  was  done  and 
an  application  was  made  to  the  commission  for  a  complaint 
against  the  United  States  Steel  Corporation  and  its  sub- 
sidiaries, and  also  against  all  of  the  so-called  "independent" 
mills. 

This  application  was  heard  by  the  commission  at  Wash- 
ington in  December,  1919.  After  a  week's  argument  in 
which  some  of  the  most  eminent  counsel  in  the  country  were 
engaged,  the  commission  took  the  matter  under  advisement, 
and  in  the  following  June,  1920,  handed  down  a  decision 
denying  the  application.  This  was  by  the  close  vote  of 
three  to  two. 

H.  G.  Pickering,  of  Superior,  Wisconsin,  was  then 
engaged  as  counsel  by  the  Western  Association  of  Rolled 
Steel  Consumers  to  replace  Mr.  Miller,  whose  health  was 
failing  and  who  died  a  short  time  thereafter. 

Rehearing  Asked 

Mr.  Pickering  made  an  application  for  a  rehearing,  which 
was  granted  in  September,  1920.  The  matter  was  again 
heard  by  the  commission  in  November  and  December,  1920. 
Again  the  commission  took  the  application  under  advisement. 

The  commission's  personnel  had  changed  somewhat  and 
on  April  30,  1921,  a  decision  was  handed  down,  once  more 
by  the  narrow  vote  of  three  to  two,  granting  the  complaint. 
This  complaint  applied  only  to  the  United  States  Steel 
Corporation  and  eleven  of  its  subsidiaries,  the  purpose  being 
to  simplify  the  case,  inasmuch  as  any  decision  made  against 
the  United  States  Steel  Corporation  would  similarly  affect 
all  other  steel  producers.  | 

Investigators  and  attorneys  for  the  commission  at  once  ' 
began  the  gathering  of  evidence,  and  the  actual  hearing_of 
testimony  was  begun  in  Milwaukee,  January 
commission's  case   was  concluded   at   LiRKago  in   January 
1923,   at   which   time   the  defense   of   the   respondent,   the 
United   States   Steel   Corporation,   was  begun.     This   was 
concluded  the  following  July.     Rebuttal  testimony  on  the 
part  of  the  commission  begins  December  10,  1923. 

The  hearings  were  conducted  by  John  W.  Bennett,  special 
examiner  of  the  Federal  Trade  Commission,  and  were  held 
in  Chicago,  Milwaukee,  Minneapolis,  Duluth,  Washington, 
Chattanooga,  Birmingham,  New  York,  Pittsburgh  and 
Detroit.  This  is  the  history  of  the  now  famous  case, 
admitted  to  be  the  most  important  ever  to  corfie  before  the 
Federal  Trade  Commission,,  and  by  Judge  Gary  termed 
one  of  the  greatest  lawsuits  ever  tried  in  this  country. 

65 


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f 


Chronology  of  Case 

For  the  purpose  of  convenience,  a  chronology  of  actual 
steps  taken  in  this  case  is  given.     It  is  as  follows : 

July  9,  1919. — ^Agreement  between  Judge  E.  H. 
Gary,  on  behalf  of  the  United  States  Steel  Corpora- 
tion, and  John  S.  Miller,  representing  the  Western 
Association  of  Rolled  Steel  Consumers,  who  together 
appeared  before  the  Federal  Trade  Commission,  that 
Mr.  Miller  should  file  an  application  for  a  complaint. 

August  1,  1919. — ^Application  for  a  complaint  against 
the  United  States  Steel  Corporation  and  its  subsidiary 
companies,  and  the  Inland  Steel  Company;  the  Inter- 
state Iron  &  Steel  Company,  and  the  Steel  8c  Tube 
Company  of  America,  filed  by  the  Western  Association 
of  Rolled  Steel  Consumers. 

August  22  to  August  30,  1919. — ^Applications  for 
complaint  filed  before  Federal  Trade  Commission  by 
the  following: 

Superior,  Wis.,  Commercial  Club. 

State  of  Minnesota. 

Joint  Committee  of  Civic  Organizations  of  Duluth, 

City  of  Duluth. 

Southern  Association  of  Steel  Fabricators  (Alabama, 
Florida,  Georgia,  Louisiana,  Mississippi,  North  Caro- 
lina, South  Carolina,  Texas  and  Virginia). 

The  Birmingham  Civic  Association  and  the  Birming- 
ham Steel  Base  Bureau. 

August  and  September,  1919. — ^Answers  filed  by 
respondents  and  others. 

December  2-6,  1919. — "Pittsburgh  Plus"  hearing 
before  the  Federal  Trade  Commission  at  Washington, 
Commissioners  Murdock,  Thompson  and  Colver  being 
present. 

July  24,  1920. — ^Application  for  complaint  denied. 
Commissioners  Murdock,  Colver  and  Gaskill  voted 
against  the  issuance  of  the  complaint.  Commissioners 
Thompson  and  Pollard  voted  for  it. 

August  1,  1920. — ^Application  for  rehearing  filed  by 
H.  G.  Pickering,  now  retained  as  counsel  by  the  West- 
ern Association  of  Rolled  Steel  Consumers. 

September  1,  1920. — An  advance  of  40  per  cent  in 
freight  rates,  increases  the  "Pittsburgh  Plus"  charge 
at  Chicago  from  $5.40  per  ton  to  $7.60.  The  arbitrary 
Birmingham  base  price  is  increased  from  $3  per  ton  to 
$5  per  ton  above  the  Pittsburgh  base  price. 

September  20,  1920. — Federal  Trade  Commission 
grants  rehearing  and  orders  re-argument.  Voting  for 
rehearing:  Conunissioners  Thompson,  Pollard  and  Col- 
ver. Voting  against  rehearing:  Commissioners  Mur- 
dock and  Gaskill. 

November  15-17,  1920. — Rehearing  at  Washington. 
Commissioners  Murdock,  Thompson,  Pollard  and  Gas- 
kill present. 

Appearance  by  the  late  Clifford  Thorne,  on  behalf 
of  the  American  Farm  Bureau  Federation,  in  opposi- 
tion to  practice  and  filing  by  him  of  comprehensive  brief 

66 


and  argument  with  commission.  Also  appearance  by 
F.  J.  Arthurs,  who  offered  a  resolution  of  the  National 
Association  of  Purchasing  Agents  (4,000  members) 
condemnatory  of  '^Pittsburgh  Plus."  Arguments  by 
the  applicants  lasting  three  days. 

Dcember  6,  7,  8,  9,  1920. — ^Arguments  by  respon- 
dents and  reply  arguments  by  applicants.  Commission 
takes  application  under  advisement. 

April  30,  1921. — Federal  Trade  Commission  issues 
a  complaint  against  the  United  States  Steel  Corpora- 
tion and  its  subsidiary  companies  which,  in  brief,  states 
that  there  is  reason  to  believe  that  the  "Pittsburgh 
Plus"  practice  constitutes  an  unfair  method  of  compe- 
tition under  the  Federal  Trade  Commission  Act,  and 
price  discrimination  as  forbidden  by  the  Clayton  Act. 
Voting  for  the  complaint:  Commissioners  Thompson, 
Pollard  and  Nugent.  Voting  against  the  complaint: 
Commissioners  Murdock  and  Gaskill. 

July  1,  1921. — ^Attorneys  for  commission  begin  gath- 
ering evidence. 

'  January  30,  1922.— "Pittsburgh  Plus"  hearings  open 
at  Milwaukee,  Wisconsin,  before  Special  Examiner 
John  W.  Bennett.  Government  opens  its  case  and 
offers  evidence. 

March  1- November  1,  1922. — Hearings  at  Chicago, 
Minneapolis,  Duluth,  Chattanooga,  Washington.  Gov- 
ernment concludes  its  direct  testimony  at  Washington. 

January  19- July  17,  1923. — U.  S.  Steel  Corporation 
puts  in  its  defense  at  hearings  held  at  Chicago,  Birming- 
ham, New  York,  Pittsburgh,  Detroit  and  Washington. 
Commission  "sets  August  6  as  date  for  beginning  of 
rebuttal  testimony. 

July  1,  1922. — ^A  reduction  of  10  per  cent  in  freight 
rates  reduces  *Tittsburgh  Plus"  charge  at  Chicago  from 
$7.60  to  $6.80  per  ton.  No  change  is  made  in  the 
arbitrary  base  price  at  Birmingham,  which  remains  at 
$5  per  ton  above  the  Pittsburgh  base  price.  (The 
carload  freight  rate  from  Pittsburgh  to  Birmingham 
is  now  $11.60  per  ton.) 

July  28,  1923.--'Tittsburgh  Plus"  Committee  of 
four  states — Illinois,  Iowa,  Minnesota  and  Wisconsin 
— whose  legislatures  appropriated  approximately  $55,- 
000  to  assist  in  the  campaign  for  the  abolition  of  *Titts- 
burgh  Plus,''  petitions  Federal  Trade  Commission  to 
postpone  rebuttal  testimony  until  December  10,  to  allow 
time  for  a  survey  of  economic  conditions  and  collection 
of  additional  data  for  rebuttal  testimony. 

August  1,  1923. — Rebuttal  testimony  set  for  Decem- 
ber 10  'by  commission. 

August  28,  1923.— National  Association  of  Attorneys 
General  condemns  '^Pittsburgh  Plus.'' 

September  15,  1923. — Organization  of  "The  Asso- 
ciated States  Opposing  Pittsburgh  Plus"  is  formed  by 
the  joint  "Pittsburgh  Plus"  committees  of  Illinois, 
Iowa,  Minnesota  and  Wisconsin. 

67 


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4 


Associated  States 

During  1921  the  legislatures  of  five  mid-western  states — 
Illinois,  Iowa,  Minnesota,  Missouri  and  Wisconsin — passed 
resolutions  condemnatory  of  "Pittsburgh  Plus/'  Several  of 
these  states  instructed  their  attorneys  general  to  intervene 
in  the  pending  case.  The  senate  of  Georgia  also  passed  a 
condemnatory  resolution  in  192L 

In  1923  the  legislatures  of  four  mid-western  states,  rec- 
ognizing the  injury  done  by  *Tittsburgh  Plus,"  both  because 
of  its  effect  upon  the  consumer  in  increased  commodity  prices 
and  its  damaging  effect  upon  industry,  appropriated  in  the 
aggregate,  the  sum  of  $54,900  to  aid  in  the  campaign  for 
the  abolition  of  this  practice. 

These  states  and  their  respective  appropriations  were: 
IlHnois,  $25,000;  Iowa,  $10,000;  Minnesota,  $10,000;  Wis- 
consin, $9,900. 

Iowa,  Minnesota  and  Wisconsin  each  appointed  commis- 
sions consisting  of  the  governor  and  attorney  general  of  the 
state  to  supervise  the  expenditure  of  their  appropriations. 
Illinois  appointed  a  commission  of  seven  to  do  likewise. 
This  resulted  in  thirteen  men  having  charge  of  the  fight 
against  'Tittsburgh  Plus"  on  behalf  of  these  four  states. 
These  commissions  met  in  July,  1923,  and  formed  a  joint 
commission  for  concerted  action.  B.  F.  Baker,  Vice-Presi- 
dent  and  Treasurer  of  the  Kewanee  Boiler  Company,  of 
Kewanee,  Illinois,  chairman  of  the  Illinois  commission,  was 
made  chairman  of  this  joint  commission,  and  Attorney  Gen- 
eral Herman  L.  Ekern,  of  Wisconsin,  was  made  secretary. 

Several  meetings  of  this  commission  were  held;  econo- 
mists and  counsel  were  employed,  and  other  steps  taken  to 
further  the  purposes  of  the  campaign  against  "Pittsburgh 
Plus."  In  September,  1923,  it  was  determined  to  expand 
this  organization  by  inviting  other  states  to  join  in  the 
movement  through  their  governors  and  attorneys  general. 
No  financial  aid  was  sought  of  these  other  states,  but  their 
commissions  were  asked  to  act  in  an  advisory  capacity,  and 
ilso  to  set  forth  specifically  for  the  benefit  of  the  Federal 
Trade  Commission  the  injuries  suffered  by  each  state  because 
of  "Pittsburgh  Plus." 

This  invitation  met  with  a  gratifying  response,  so  that 
by  December  5,  1923,  thirty-two  states  had  joined  in  this 
campaign,  their  organization  being  known  as  "The  Asso- 
ciated States  Opposing  Pittsburgh  Plus."  These  states  are 
as  follows: 


Alabama 

Kentucky 

New  Mexico 

Arizona 

Louisiana 

North  Dakota 

Colorado 

Maine 

Oklahoma 

Delaware 

Massachusetts 

Oregon 

Florida 

Michigan 

Rhode  Island 

Georgia 

Minnesota 

South  Carolina 

Idaho 

Mississippi 

South  Dakota 

Illinois 

Missouri 

Utah    . 

Indiana 

Montana 

Wisconsin 

Iowa 

Nebraska 

Wyoming 

Kansas 

Nevada 

■\ 

4 


6% 


During  the  legislative  season  of  1923  the  legislatures  of 
several  other  states  also  adopted  resolutions  condemnatory 
of  "Pittsburgh  Plus,"  these  being:  Colorado,  Indiana, 
Michigan,  Nebraska  and  South  Dakota,  which,  added  to, 
the  five  states  whose  legislatures  had  protested  in  1921,  and 
the  senate  of  Georgia,  made  a  total  of  eleven  states  which] 
have  formally  protested  against  "Pittsburgh  Plus"  through] 
their  legislatures. 

Purpose  of  Campaign,  and  Remedy 

Those  protesting  against  the  "Pittsburgh  Plus"  practice 
and  asking  its  abolition  must,  necessarily,  ask  some  specific 
remedy. 

Doubters  as  to  the  efficacy  of  the  campaign  which  is  being 
waged  have  suggested  that  in  the  event  of  the  abolition  of 
"Pittsburgh  Plus,"  a  substitute  for  it  might  be  devised  by 
the  mills.  The  substitute  most  frequently  suggested  is  that 
the  mills  would  simply  make  different  prices  for  their  prod- 
uct at  different  locations,  which  would,  in  effect,  be  the 
same  as  the  Pittsburgh  prices,  including  the  present  "Pitts- 
burgh Plus"  differential. 

However,  the  purpose  of  the  pending  litigation,  if  attained, 
would  obviate  this.  The  applicants  for  the  complaint  ask 
not  only  that  "Pittsburgh  Plus"  be  abolished,  but  that  steel 
be  sold  at  each  mill  at  a  price  based  upon  production  cost, 
plus  a  fair  margin  of  profit. 

In  addition,  an  order  granting  the  purchaser  the  right 
to  buy  f.  o.  b.  at  the  mill,  and  pay  his  own  transportation 
charges,  that  is,  preventing  the  mill  from  quoting  only  a 
delivered  price,  would  be  effective  in  breaking  down  "Pitts- 
burgh Plus,"  as  it  would  deprive  the  mills  of  the  power  to 
quote  only  delivered  prices,  as  they  do  now.  These  deliv- 
ered prices  indude  the  "Pittsburgh  Plus"  charge,  and  a  mill 
quotation  would  make  the  inclusion  of  this  fictitious  charge 
difficult,  if  not  impossible. 

The  mill  price,  of  course,  would  not  necessarily  remain 
fixed.  It  would  be  determined  by  conditions  in  different 
marjcets,  but  the  fundamentals  of  price-basing  are  contained 
in  this  suggested  order,  and,  it  is  contended,  this  can  be  done 
by  the  application  of  existing  law. 

The  remedy  is  sought  through  section  2  of  the  Clayton 
Act,  designed  to  foster  free  competition,  and  section  5  of  the 
act  generally  known  as  the  Federal  Trade  Act,  designed 
to  prevent  unfair  competition. 

Long  and  Short  Haul 

The  contentions  of  the  mills  are  strikingly  similar  to 
those  put  forward  by  the  railroads  a  few  years  ago  in 
support  of  their  "long  and  short  haul"  policy.  By  this,  in 
many  instances,  commodities  were  hauled  from  the  point 
of  origination  of  shipment  through  smaller  towns  to  larger 
cities  at  far  greater  distances,  and  yet  the  freight  charge  to 
these  smaller  towns  was  greater  than  to  the  larger  cities 
beyond. 

The  freight  charge  was  frequently  the  through  charge 
from  the  point  of  origin  to  the  large  city,  plus  the  return 
local  charge  to  the  smaller  town,  even  though  carload  ship- 
ments were  dropped  off  at  the  small  town  without  any 
further  actual  hauling. 

69 


The  railroads  defended  this  practice  by  arguments  quite 
familiar  in  the  "Pittsburgh  Plus"  case.  There  was  the 
familiar  **economic  necessity"  argument;  the  familiar  "sta- 
bilization"  argument ;  the  familiar  arg^nent  that  "condi- 
tions would  be  chaotic"  if  this  practice  were  abandoned; 
the  familiar  argument  that  the  practice  was  "good  for  the 
consumer  in  the  small  town:"  the  familiar  argument  that 
trade  conditions  would  be  tot;ily  upset  and  lon|-time  prece- 
dent violated,  and  most  of  the  other  arguments  that  have 
been  advanced  in  support  of  *Tittsburgh  Plus." 

In  charging  for  a  shorter  haul  at  the  rate  of  a  longer 
haul,  plus  the  return  haul,  the  railroads  likewise  pocketed 
an  unearned  profit.  Naturally,  they  defended  it  vigorously 
and  predicted  all  sorts  of  disaster  were  it  abandoned 

It  took  a  long  time  to  bring  about  the  abolition  of  this 
injustice,  but  finally,  through  the  instrumentality  of  the 
Interstate  Commerce  Commission,  it  was  abolished.  Strangely 
enough,  it  worked  no  havoc  in  industry;  resulted  in  no 
chaos,  and  was  apparently  utterly  reconcilable  with  economic 
law.  Curious  as  it  may  appear  in  the  light  of  present-day 
arguments  of  the  steel  mills,  it  actually  resulted  in  stimulat- 
ing industry  at  points  which  theretofore  had  languished 
because  of  discrimination  against  them. 

Press  Comment  and  Public  Opinion 

A  great  body  of  public  opinion  has  been  aroused  on  the 
subject  of  "Pittsburgh  Plus."  At  the  inception  of  the  cam- 
paign in  1919,  little  was  known  of  the  subject.  But  as  the 
tale  of  "Pittsburgh  Plus"  was  unfolded  and  its  results 
became  more  and  more  apparent,  public  protest  gained 
greater  and  greater  volume. 

This  was  early  manifested  by  expressions  of  j)ress  opinion. 
A  vast  volume  of  newspaper,  magazine  and  trade  journal 
comment  has  appeared,  first  in  the  mid-west,  then. in  the 
south,  and  soon  spreading  over  the  entire  nation. 

This  has  been  almost  uniformly  directed  against  "Pitts- 
burgh Plus."  There  have  been  few  exceptions  to  this  rule — 
none  of  importance. 

During  the  past  two  years  "Pittsburgh  Plus"  has  become 
a  non-partisan  political  issue  in  a  number  of  states.  Several 
state  political  platforms  have  contained  planks  directed 
against  "Pittsburgh  Plus."  The  farm  bloc  in  congress  has 
taken  a  strong  stand  against  it.  Farm  journals  are  united 
against  it,  and  if  newspaper  and  magazine  comment  is  a  fair 
test  of  public  opinion,  the  steel  mills  and  the  Pittsburgh 
district  stand  almost  unique  and  alone,  aloof  from  all  other 
classes  and  sections  of  the  nation,  in  their  upholding  of  this 
steel  trade  device. 

A  Nation-Wide  Protest 

Thus  the  chorus  swells,  east  and  west,  north  and  south, 
the  chorus  of  protest  against  this  practice. 

Industry  and  agriculture;  consumers  and  the  press  repre- 
senting them;  economists;  political  leaders;  all  the  various 
component  elements  which  go  to  make  up  the  vast  body  of 
American  public  opinion  are  being  welded  together  into  a 


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united  mass  of  opposition  to  "Pittsburgh  Plus."  The  ques- 
tion is  before  the  Federal  Trade  Commission.  It  is  likely 
to  be  heard  in  the  halls  of  congress. 

From  the  nucleus  of  the  tiny  body  of  forty  manufac- 
turers gathered  together  in  a  room  in  Chicago  in  January, 
1919,  the  army  of  protestants  has  gathered  into  an  avalanche 
of  indignation  against  this  practice. 

Opposing  this  are  about  200  steel  producers,  the  jobbers 
of  steel,  the  interests  of  Pittsburgh  and  its  adjacent  terri- 
tory, and  a  few  trade  publications  whose  policy  it  is  to 
support  the  mills. 

The  numbers  of  those  opposing  the  practice  are  daily 
increasing.  Those  upholding  it,  if  not  dwindling  in  num- 
bers, are  at  best  remaining  stationary. 

Will  fofce  of  numbers,  of  public. opinion  and  of  what  the 
public  believes  to  be  its  best  interests,  or  the  influence  of 
the  steel  producers  and  of  Pittsburgh  prevail? 

The  future  will  tell. 


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